1. What is the fair market price value of a preferred share that pays $1.13 in dividends per year...

Question

1. What is the fair market price value of a preferred share that pays $1.13 in dividends per year when long-term government bond yield is 4.11% annually? List and justify the assumptions we had to make to get this result.

2. Describe how someone’s risk tolerance directly impacts their retirement planning. Use an example to illustrate how much difference it would make if someone was a conservative investor who averaged a 7% return over 32 years on their savings versus another more aggressive investor who average 11% over the same period. Interpret your results: advantages and disadvantages of the two investment strategies.

Mohammad Wasif · Accepted Answer

Solution 1
Fair Price = Dividend / Required Retaining’s 
= $ 1.13 / 4.11% = $ 27.49
Assumed that CFs are there for every year and required ret of Preference shareholders is equal to Ret from Government Bond.
Solution 2
Risk Tolerance is the ability and willingness of an investor to take on the volatility in his investments.
Risk tolerance of a young employee is high since he has a lot of time to retirement,

1. What is the fair market price value of a preferred share that pays $1.13 in dividends per year when long-term government bond yield is 4.11% annually? List and justify the assumptions we had to...

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