Preferred Stock Valuation Several years ago, Rolen Riders issued preferred stock
ID: 2650187 • Letter: P
Question
Preferred Stock Valuation
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 12% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually.
What is the value of Rolen's preferred stock? Round your answer to the nearest cent.
$ {C}
Suppose interest rate levels have risen to the point where the preferred stock now yields 15%. What would be the new value of Rolen's preferred stock? Round your answer to the nearest cent.
$
Explanation / Answer
Answer No. 1
Rolen Riders issued preferred stock with a stated annual dividend of 12% of its $100 par value.
So Dividend will be = $ 100 *0.12 = $ 12
Preferred stock of this type currently yields 7%. So cost of preferred stock is 7%
Value of preferred stock = Dividend/cost of preferred stock
= $ 12/ 7%
= $ 171.43
So , Value of preferred stock is $171.43
Answer 2
Suppose interest rate levels have risen to the point where the preferred stock now yields 15%.
Value of preferred stock = Dividend/cost of preferred stock
= $ 12/ 15%
= $ 80
So , New value of preferred stock is $ 80