Junior just received his annual bonus and is looking to investit in one of two potential investments. Junior is considering a10-year 9% coupon bond issued by HomeCo that is currently sellingfor $1,024.51. His other option is to buy stock in Residential Inc.Residential just issued a $1.2 dividend and expects to grow at 4%.Residential’s current stock price is $42.30. If both investmentsare fairly priced and Junior intends to hold the investmentindefinitely, which offers a higher return?
The stock, 6.84% > 4.31%
The bond, 9.00% > 2.95%
The bond, 8.63% > 6.95%
The stock, 4.31% > 4.00%
