1. A share of perpetual preferred stock pays an annual dividend of $12.00 per share. If investors require a 12.50 percent rate of return, what should be the price of the preferred stock ?
2. A 20-year bond pays 6% on a face value of $1,000. Similar bonds are currently yielding 5%. Suppose that an investor receives an offer to purchase the bond for $1,115. Should she purchase the bond?
a. The bond is undervalued; she should not purchase it.
b. The bond is overvalued; she should not purchase it.
c. The bond is undervalued; she should purchase it.
d. The bond is overvalued; she should purchase it.