Preferred Stock Valuation Several years ago, Rolen Riders issued preferred stock
ID: 2821576 • 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 9%. Assume dividends are paid annually. a. What is the estimated value of Rolen's preferred stock? Round your answer to the nearest cent. b Suppose interest rate levels have risen to the point where the preferred stock now yields 11%, what would be the new estimated value of Rolen's preferred stock? Round your answer to the nearest cent.Explanation / Answer
1)
Annual dividend = 0.11 * 100 = 11
Estimated value = Preferred dividends / yield
Estimated value = 11 / 0.09
Estimated value = $122.2
2)
Estimated value = 11 / 0.11
Estimated value = $100