Holdup Bank has an issue of preferred stock with a $5.55 stated dividend that just sold...

Question

Question

Answer 1

Answer #1

Answer to Question 1:

Cost of Preferred Stock = Annual Dividend / Current Price
Cost of Preferred Stock = $5.55 / $92.00
Cost of Preferred Stock = 0.0603 or 6.03%

Answer to Question 2:

Face Value = $1,000

Current Price = 103% * $1,000
Current Price = $1,030

Annual Coupon Rate = 4.00%
Semiannual Coupon Rate = 2.00%
Semiannual Coupon = 2.00% * $1,000
Semiannual Coupon = $20

Time to Maturity = 12 years
Semiannual Period = 24

Let Semiannual YTM be i%

$1,030 = $20 * PVIFA(i%, 24) + $1,000 * PVIF(i%, 24)

Using financial calculator:
N = 24
PV = -1030
PMT = 20
FV = 1000

I = 1.844%

Semiannual YTM = 1.844%

Annual YTM = 1.844% * 2
Annual YTM = 3.69%

Pretax Cost of Debt = 3.69%

After-tax Cost of Debt = 3.69% * (1 - 0.21)
After-tax Cost of Debt = 2.92%

Answer 2

Similar Homework Help Questions

Holdup Bank has an issue of preferred stock with a $5.65 stated dividend that just sold...

Holdup Bank has an issue of preferred stock with a $5.65 stated dividend that just sold for $93 per share. What is the bank's cost of preferred stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of preferred stock %
Holdup Bank has an issue of preferred stock with a $1.4 stated dividend that just sold...

Holdup Bank has an issue of preferred stock with a $1.4 stated dividend that just sold for $44.86 per share. What is the bank's cost of preferred stock? Enter the answer with 4 decimals (e.g. 0.1234).
Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just...

Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just sold for $87 per share. What is the bank's cost of preferred? 7.00 percent 7.64 percent 8.39 percent 8.05 percent 7.54 percent

Sixth Fourth Bank has an issue of preferred stock with a $3.80 stated dividend that just...

Sixth Fourth Bank has an issue of preferred stock with a $3.80 stated dividend that just sold for $89 per share. What is the bank’s cost of preferred stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
1. Holdup Bank has an issue of preferred stock with a $3.75 stated dividend that just...

1. Holdup Bank has an issue of preferred stock with a $3.75 stated dividend that just sold for $87 per share. What is the bank's cost of preferred stock? (5 pts) • Use Par Value =1000, if not provided. Round your answer to two decimal places as showw below: your answer is reported as %: 12.55% your answer is reported as a value: $100.51 Failure to comply with this will result in a point for more) reduction.
2. Holdup bank has an issue of preferred stock with a 4.25 stated dividend and its...

2. Holdup bank has an issue of preferred stock with a 4.25 stated dividend and its selling for $92 per share. What's the cost of its preferred?

Question 3 1 pts Holdup Bank has an issue of preferred stock with a $6 stated...

Question 3 1 pts Holdup Bank has an issue of preferred stock with a $6 stated dividend that just sold for $92 per share. Holdup has a 34% tax rate. What is the bank's cost of preferred stock? Choose the range that includes the correct solution. Less than 3% Greater than or equal to 3%, but less than 4% Greater than or equal to 4%, but less than 5% Greater than or equal to 5%, but less than 6% Greater...
Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend...

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $17 in perpetuity, beginning 6 years from now. If the market requires a return of 3.1 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price $
Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend...

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $12 in perpetuity, beginning 17 years from now. If the market requires a return of 4.2 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend...

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $10 in perpetuity, beginning 15 years from now. If the market requires a return of 4 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price