Preferred Products has issued preferred stock with an annual dividend of $7.00 t
ID: 2743662 • Letter: P
Question
Preferred Products has issued preferred stock with an annual dividend of $7.00 that will be paid in perpetuity. a. If the discount rate is 10%, at what price should the preferred sell? Current Price? b. At what price should the stock sell 1 year from now? Future Price? c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock? (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent.) Dividend yield %? Capital gains yield%? Expected Rate %
Explanation / Answer
Answer 1.
Price = Dividend/Discount Rate
Price = 7.00/0.10
Price = $70.00
Answer 2.
Price = Dividend/Discount Rate
Price = 7.00/0.10
Price = $70.00
Answer 3.
Dividend Yield = Dividend/Price
Dividend Yield = 7/70
Dividend Yield = 10%
Capital Gain Yield = percentage increase in stock price or growth rate
Capital Gain Yield = 0
Expected Rate of Return = D1/P0 + g
Expected Rate of Return = 7/70
Expected Rate of Return = 10%