Bedford Mattress Co. issued preferred stock many years ago. It carries a fixed d

Question

Bedford Mattress Co. issued preferred stock many years ago. It carries a fixed dividend of $12 per share. With the passage of time, yields have gone down from the original 11% to 10% (yield is the same as the required rate of return)

a. What was the original issue price?

b. What is the current value of this preferred stock?

Bedford Mattress Co. issued preferred stock many years ago. It carries a fixed dividend of $12 per share. With the passage of time, yields have gone down from the original 11% to 10% (yield is the same as the required rate of return)

a. What was the original issue price?

b. What is the current value of this preferred stock?

Explanation / Answer

a) Original issue price is 12/( 1 - 1/1.11 ) = $121.09

b) Current Price is 12/( 1 - 1/1.1 ) = $132

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