An investor is currently undecided on which of the three investment options to choose given the following information

• Government bonds are offered with 6% interest rate
• Inflation rate is at 3%
• Index of non-diversifiable risk is currently at 2.00
• Expected return on market index is 10%.
• Gross domestic product has increase by 2%
• Treasury bills rate is currently at par with inflation
• Unemployment has decreased by 3%

Option 1 - Ed Noel Corporation stocks which is currently traded at a price of 16.50 per share and constantly giving a dividends of 2.50 per share every year. 

Option 2 - Olrac Corporation stocks which is currently traded in the stock market for a price of 3.00 per share. The company's current cash flow is 2,500,000 and is expected to increase by 7% per year. The company's total liability is 18,000,000 and a total of 3,000,000 outstanding shares.

Option 3 - Nhoj Corportion bonds with a par value of 1,000 which pays an interest of 7% per year and will mature 5 years from today and currently being sold at 550.

1. What is the value of Ed Noel stocks?

2. What is the value of Olrac Corporation stocks?

3. What is the current value of the Nhoj Corporate bonds?

4. Which of the three investments would you recommend? Justify your answer.

Answer rating: 100% (QA)

1 The value of Ed Noel Corporation stocks can be calculated using the dividend discount model DDM The formula for DDM is Stock Value Dividend Required ... View the full answer