Computation of bond valuation
You are offered two alternatives: a share of preferred stock which pays you $40 per year (but the actual payments are made quarterly) for ten years; or some 15 year US savings bond that pays 6% coupon per year (on a quarterly basis) and with a face value of $100. The preferred stock and the bond have beta risks of 0.5 and 0.2, respectively. The risk-free interest rate (on a quarterly basis) is 4% and the expected market return (also on a quarterly basis) is 12%. How many bonds have to offer to you for each share of preferred stock in order to make you indifferent between the two alternatives?