You are currently considering three investment possibilities. The first is a bond selling in the market for $1,100. The

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You are currently considering three investment possibilities.The first is a bond selling in the market for $1,100. The bond hasa $1,000 par value with a coupon of 11 percent and will mature in17 years. For bonds of this risk clas, you believe that a 16percent rate of return is required. The second investment that youare analyzing is a preferred stock that has a par value of $100,sells for $85 and pays an annual dividend of $15.00. Your requiredrate of return is 19 percent. The last investment is a common stockwith a par value of $25.00 that recently paid a $3.00 dividend pershare. The firm's earnings per hare have recorded an annual growthrate of 5 percent and are expected to continue this trendindefinitely. The stock is currently selling for $15.00 and youthink that a reasonable required rate of return is 18 percent.Required: Given the above information: (a) Calculate the instrinsicvalue of each security. (b) Which investment(s) should you buy?Why?
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