Preferred Stock Valuation Several years ago, Rolen Riders issued preferred stock
ID: 2776461 • Letter: P
Question
Preferred Stock Valuation
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 9% of its $100 par value. Preferred stock of this type currently yields 10%. Assume dividends are paid annually.
What is the 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 value of Rolen's preferred stock? Round your answer to the nearest cent.
Explanation / Answer
Per value of preferred stock 100 Stated annual Dividend @9% 9 Current yield of same preferred stock 10% Current Price of Preferred Stock = 9/10% = $90 If interest rate raises from 10% to 14%, Value of Preferred Stock = 9/14% = $64.29