![7 10 00 poirs Problem 17-22 Floating rate preferred stock [LO17-5] Ine. has two classes of prefermed rate preferred stock and straight (normal) preferred stock Both issues have a per value of $100. The foang-rae preferred stock pays 0 percent Since the iswuance of the two securities, interest rates have gone up by 1 00 percent for each issua securities will pary their year-end dividend and round your answer to 2 decimal places.) b. What is the price of the straight preferred stock kely to be? (Do not round intermediate caleulations and round your answer to 2 decimal places) O Type here to search 으](http://img.homeworklib.com/questions/bd6604e0-4422-11ea-8d94-59087b277724.png?x-oss-process=image/resize,w_560)
Homework Answers
(a) The Price of the floating rate preferred stock should be traded close to the par value of $ 100 per share since the interest rates will adjust to current market conditions rather than price.
(b) Price of the straight preferred stock = Dividend / Discount rate
= ( $ 100 * 9 % ) / ( 9% + 1%) (discount rate is added with 1% as the interest rate has gone up)
= $ 9 / 10 %
= $ 90.
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