Preferred stockholder expected return) You own 100 shares of Shapard Resources preferred stock, which currently sells...

Question

Question

Preferred stockholder expected return) You own 100 shares of Shapard Resources preferred stock, which currently sells...

Preferred

stockholder expected

return)

You own

100

shares of Shapard Resources preferred stock, which currently sells for

$37

per share and pays annual dividends of

$5.25

per share.

a. What is your expected return?

b. If you require a return of

11

percent, given the current price, should you sell or buy more stock?

a. Your expected return is

nothing

percent. (Round to two decimal places.)b. If you require a return of

11

percent, the value of the stock for you is

$ .

(Round to the nearest cent.)Because the expected rate of return is

▼

less than

greater than

your required rate of return or the intrinsic value of because the current market price is

▼

less than

greater than

$47.73,

the Shapard Resources preferred stock is

▼

overvalued

undervalued

and you should

▼

sell

buy

the stock. (Select from the drop-down menus.)

business finance

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Answer 1

Answer #1

a. What is your expected return?

=5.25/37=14.189%

b. If you require a return of 11 percent, given the current price, should you sell or buy more stock?

Value of the stock=5.25/11%=47.72727273

Because the expected rate of return is greater than your required rate of return or the intrinsic value of 47.73 because the current market price is less than $47.73, the Shapard Resources preferred stock is undervalued and you should buy the stock.

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Answer 2

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