Earley Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%,...

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Earley Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%,...

Earley Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%, and its par value is $100. What is the stock's value? Round your answer to two decimal places. $_____

Suppose interest rates rise and pull the preferred stock's yield up to 14%. What is its new market value? Round your answer to two decimal places. $_____

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Answer 1

Answer #1

Value of preferred stock = Annual dividend / Annual yield = ($100 * 0.08) / 0.10 = $8/0.10 = $80 per share

New market value of preferred stock = $8 / 0.14 = $57.14 per share

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Answer 2

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Earley Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%,...

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Earley Corporation issued perpetual preferred stock with a 9% annual dividend. The stock currently yields 8%,...

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Add Answer to: Earley Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%,...

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Earley Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%,...