Using the internet, reference Lasher, W. R. (2011). Practical financial management (6th ed.). Mason, OH: South-Western to complete this assignment as well as supplementary sources from your research.

Answer the following 5 questions:

1. Valuation - preferred stock

What is the value of a share of preferred stock that pays a $9.50 dividend, assume k is 12%.

2. Valuation – corporate bond

A $1,000 corporate bond with 20 years to maturity pays a coupon of 7% (semi-annual) and the market required rate of return is a) 6.6% b) 13%. What is the current selling price for a) and b)?

3. Valuation – convertible bond

You purchased one of AAA Corp.’s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. The bond is convertible into stock at a price of $35. The stock is now selling for $40.

Assume no dividends.

a) You exercise the conversion feature today and immediately sold the stock you received. Calculate the total return on your investment.

b) What would your return have been if you had invested $1,000 in AAA’s stock instead of the bond?

4. Charlie Company is expected to grow at an annual rate of 6% indefinitely. The return on similar stocks is currently 11%. Charlie's board of directors declared a dividend of $1.85 yesterday. What should a share of Charlie Company sell for?

5. A $1000 par value convertible bond has a conversion price of $50. It is currently selling for $1,120 despite the fact that the bond’s coupon rate and the market rate are equal. The common stock obtained upon conversion is selling for $54 per share. What is the convertible bond’s conversion premium?