CCE Inc. has preferred stocks outstanding. The preferred dividend per share is $

Question

CCE Inc. has preferred stocks outstanding. The preferred dividend per share is $2.5 and the required rate of return is .20. What is the expected price per share?

Select one:

a. $14.13

b. $13.77

c. $13.11

d. $12.5

Five years ago, you bought a EEP preferred stock at $20. You have received a dividend of $4 per year. The current price of the preferred stock is $25. If you sell the stock now, what is your realized rate of return?

Select one:

a. 21.08%

b. 17.66%

c. 22.27%

d. 24.2%

e. 23.16%

Based on the following information concerning Ford preferred stock,

      Preferred dividend per share: $9

      Beta: 0.85

      Risk free rate: 5%

      Market risk premium: 6%

Calculate the expected price in 4 years. You expect the risk free rate to decrease to 3% and the market risk premium to increase to 10% in 4 years.

Select one:

a. $76.43

b. $78.26

c. $80.65

d. $74.22

Explanation / Answer

1-

1- expected price per share

dividend per share*required rate of return

2.5/.2

12.5

2-

realized rate of return

Using rate function in MS excel = nper = 5 pv= 20 fv = 25 pmt = 4 type = 0 rate(nper,pmt,pv,fv,type)

RATE(5,4,-20,25,0)

23.16%

3-

required rate of return

risk free rate+(market risk premium)*beta

3+(10)*.85

11.5

price of stock

preferred dividend/required return

9/11.5%

78.26

1-

1- expected price per share

dividend per share*required rate of return

2.5/.2

12.5

2-

realized rate of return

Using rate function in MS excel = nper = 5 pv= 20 fv = 25 pmt = 4 type = 0 rate(nper,pmt,pv,fv,type)

RATE(5,4,-20,25,0)

23.16%

3-

required rate of return

risk free rate+(market risk premium)*beta

3+(10)*.85

11.5

price of stock

preferred dividend/required return

9/11.5%

78.26

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