You are currently considering three investment possibilities. The first is a bond selling in the market for $1,100. The bond has a $1,000 par value with a coupon of 11 percent and will mature in 17 years. For bonds of this risk clas, you believe that a 16 percent rate of return is required. The second investment that you are analyzing is a preferred stock that has a par value of $100, sells for $85 and pays an annual dividend of $15.00. Your required rate of return is 19 percent. The last investment is a common stock with a par value of $25.00 that recently paid a $3.00 dividend per share. The firm's earnings per hare have recorded an annual growth rate of 5 percent and are expected to continue this trend indefinitely. The stock is currently selling for $15.00 and you think that a reasonable required rate of return is 18 percent. Required: Given the above information: (a) Calculate the instrinsic value of each security. (b) Which investment(s) should you buy? Why?

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