Question

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?

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Answer #1

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 / 0.12

New Market value of the Stock (P0) =$83.33

answered by: Khululekile
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