Starting Right Corporation

Topics: Preferred stock, Bond, Security Pages: 3 (512 words) Published: June 13, 2008
Starting Right Corporation

There are four options for investors.
1) Corporate Bond
2) Preferred Stock
3) Common Stock
4) Do not invest

Total money Yield of $30000 invested Percentage
After 5 years
Favorable MarketUnfavorable MarketFavorable MarketUnfavorable Market Corporate Bond13.00%20,000
$25,273 $20,000 84.24%66.67%
Preferred Stock 400%50%
$90,000 ($15,000)300.00%-50.00%
Common Stock800%0%
$210,000 ($30,000)700.00%-100.00%
Do Not Invest 4.50%4.50%
$7,385 $7,385 24.62%24.62%

In this simple case, we will remove the interest adjusted assumption and the time value of money Also we are in the decision making under uncertainty environment since we do not know how the market will behave in the next 5 years

1) Sue Pan sky: very conservative

State of Nature
AlternativesFavorable MarketUnfavorable MarketMinimum Profit Corporate Bond$25,273 $20,000 $20,000
Preferred Stock$90,000 ($15,000)($15,000)
Common Stock$210,000 ($30,000)($30,000)
Do nothing$7,385 $7,385 $7,385
$20,000 < Maximin Profit
Sue will choose to buy the company's corporate Bond

2) Ray Cahn: Success 11%

State of Nature
AlternativesFavorable MarketUnfavorable MarketExpected Profit Corporate Bond$25,273 $20,000 $20,580
Preferred Stock$90,000 ($15,000)($3,450)
Common Stock$210,000 ($30,000)($3,600)
Do nothing$7,385 $7,385 $7,385
Coefficient of Realism alpha0.110.89
$20,580
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