You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money:

A Microsoft bond with a par value of $1,000 that pays 9.00 percent on its par value in interest, sells for $1,165.18, and matures in 13 years.

Southwest Bancorp preferred stock paying a dividend of $2.12 and selling for $29.56.

Emerson Electric common stock selling for $59.78, with a par value of $5. The stock recently paid a $1.89 dividend, and the firm's earnings per share has increased from $2.35 to $3.79 in the past 5 years. The firm expects to grow at the same rate for the foreseeable future. Your required rates of return for these investments are 5.50 percent for the bond, 8.50 percent for the preferred stock, and 12.50 percent for the common stock. Using this information, answer the following questions.

a. If your required rate of return on the bonds is 5.50%, what is the value of Microsoft bond? $_____ (Round to the nearest cent.)

If your required rate of return on the preferred stock is 8.50%, what is the value of Southwest Bancorp preferred stock? $_____ (Round to the nearest cent.)

Emerson Electric's earnings per share has increased from $2.35 to $3.79 in the past five years. What is the annual compounding growth rate?

_____% (Round to two decimal places.)

If your required rate of return on the common stock is 12.50%, what is the value of Emerson Electric common stock? $_____ (Round to the nearest cent.)

b. Should you invest in the Microsoft bond? (Choose Yes or No)

> Yes, the expected value of the bond is greater than the market price.

> No, the expected value of the bond is less than the market price.

Should you invest in the Southwest Bancorp preferred stock?(Choose Yes or No)

> Yes, the expected value of the bond is greater than the market price.

> No, the expected value of the bond is less than the market price.

Should you invest in the Emerson Electric common stock?(Choose Yes or No)

> Yes, the expected value of the common stock is greater than the market price.

> No, the expected value of the common stock is less than the market price.

c. Assume Emerson Electric's managers expect an earnings to grew at 2 percent above the historical growth rate. What is the value of Emerson Electric common stock? $_____ (Round to the nearest cent.)

Should you invest in the Emerson Electric common stock?(Choose Yes or No)

> Yes, the expected value of the common stock is greater than the market price.

> No, the expected value of the common stock is less than the market price.

d. What required rate of return would make you indifferent to Microsoft bond? _____% (Round to two decimal places.)

What required rate of return would make you indifferent to Southwest Bancorp preferred stock? _____% (Round to two decimal places.)

What required rate of return would make you indifferent to Emerson Electric common stock? _____% (Round to two decimal places.)