Ezzell Corporation issued perpetual preferred stock with a 10percent annual dividend.
Ezzell Corporation issued perpetual preferred stock with a 10percent annual dividend. The stock currently yields 8 percent, and it's par value is $100.
a) What is the stock's value?
b) Suppose interest rates rise and pull the preferred stock's yield up to 12 percent. What would be its new market value?
Homework Answers
Ezzell Corporation’s Perpetual preferred stock = 10%annual dividend
Par Value = $100
Annual Dividend amount($100*10%) = $10
The stock currently yield (R ) = 8%
(a) Stock Value (P0) = D / R
=$10 / 0.08
CurrentStock Value (P0) = $125(b) If the interest rate rises, the preferredstock’s yield up to 12%:
StockValue (P0) = D / R
=$10 / 0.12New Market value of the Stock (P0) =$83.33
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