You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing the money: A bond with a par value of $1,000 that pays 4.2% on its par value in interest, sells for $1,115 and matures in 4 years A preferred stock paying a dividend of $2.63 and selling for $26.25 Common stock in a company selling for $60, with a par value of $5. The stock recently paid a dividend of $1.88 and the firms earnings per share has increased from $2.27 to $3.78 (or 10.7%) 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 three investments are 3% for the bond, 5% for the preferred stock, and 12% for the common stock. Using this information, answer the following questions.

1. Calculate the value of each investment based on your required rate of return.
2. Which investment would you select and why?
3. What required rate of return would make you indifferent between all three options?