Preferred Stock Valuation Several years ago, Rolen Riders issued preferred stock
ID: 2758665 • Letter: P
Question
Preferred Stock Valuation
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 10% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually.
What is the estimated value of Rolen's preferred stock? Round your answer to the nearest cent.
$
Suppose interest rate levels have risen to the point where the preferred stock now yields 14%. What would be the new estimated value of Rolen's preferred stock? Round your answer to the nearest cent.
Explanation / Answer
Stock price:
= Dividend per annum/Required rate
= $10/7%
= $142.86
Stock price:
= Dividend per annum/Required rate
= $10/14%
= $71.43