Preferred Stock Valuation Several years ago, Rolen Riders issued preferred stock
ID: 2778040 • Letter: P
Question
Preferred Stock Valuation
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 11% of its $100 par value. Preferred stock of this type currently yields 8%. 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 12%. What would be the new value of Rolen's preferred stock? Round your answer to the nearest cent.
Explanation / Answer
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 11% of its $100 par value. Preferred stock of this type currently yields 8%. Assume dividends are paid annually.
What is the value of Rolen's preferred stock? Round your answer to the nearest cent.
value of Rolen's preferred stock = annual dividend/currently yields
value of Rolen's preferred stock = 11%*100/8%
value of Rolen's preferred stock = 137.50
Suppose interest rate levels have risen to the point where the preferred stock now yields 12%. What would be the new value of Rolen's preferred stock? Round your answer to the nearest cent.
New value of Rolen's preferred stock = annual dividend/ New yields
New value of Rolen's preferred stock = 11%*100/12%
New value of Rolen's preferred stock = $ 91.67