1 ) ABC Investment Advisors is considering investing in bonds and stock issued by Major Works Incorporated....
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Question:
ABC Investment Advisors is considering investing in bonds and stock issued by Major Works Incorporated. As part of the decision process, ABC is estimating Majors bond and stock values and expected returns. Given below is the information determined by their research:
A The current market price of Majors outstanding corporate bonds is of their $ par value. The bonds have an annual coupon rate of and make coupon payments semiannually. The bonds mature in years.
B The current price of the firms preferred stock is $ per share. The stock has a $ par value and a annual dividend rate paid annually
C The current price of the firms common stock is $ per share. Its next upcoming semiannual dividend will be D $ per share. Dividends are paid semiannually and are expected to grow at an annual rate of into the foreseeable future. NOTE that $ is the amount of the semiannual dividend. It does not need to be divided by two.
ABC Investment Advisors is basing its analysis on a required rate of return equal to per year.
Based on the information above, answer the following:
Based on the value and expected return # should the preferred stock be purchased? Why? Be sure to base your answer on BOTH the value and the expected return.
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