Question

Preferred Products has issued preferred stock with an annual dividend of $6.96 that will be paid in perpetuity.

a. If the discount rate is 12%, at what price should the preferred sell? (Round your answer to 2 decimal places.)

b. At what price should the stock sell 1 year from now? (Round your answer to 2 decimal places.)

c. What are the (i) the dividend yield; (ii) the capital gains yield; (iii) the expected rate of return of the stock? (Enter your answers as a whole percent.)

Answer 1

solution a) The devedendo preferred stock price = Delo= pays à constant 6.96/0012 = 58 Because the devederd remains constant, the price should same at the rate of remain the the same. return remains So, future price = 58 C Dividend yield = 6096 / 58 = 12.70 capital gains yield = 0% Rate of return = devidend yield t capital gains yield =12%