Preferred stock value (LO4) X-Tech Company issued preferred stock many years ago

Question

Preferred stock value (LO4) X-Tech Company issued preferred stock many years ago. It carries a fixed dividend of $5.00 per share. With the passage of time, yields have soared from the original 5 percent to 12 percent (yield is the same as required rate of return).
a. What was the original issue price? __________

b. What is the current value of this preferred stock? __________

26. Preferred stock rate of return (LO4) Grant Hillside Homes, Inc., has preferred stock outstanding that pays an annual dividend of $9.80. Its price is $110. What is the required rate of return (yield) on the preferred stock? __________

Explanation / Answer

For preferred stock Price= dividend/required rate of return. a)So for the original issue price was P= 5.00/.05= $100. b) current value 5.00/.12= $41.67 26. 110= 9.80/r r= 9.80/110= 8.91%

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