Jones Design wishes to estimate the value of its outstanding preferred stock. Th

Question

Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $70 and pays an annual dividend of $5.90 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 10.3%. a. What is the market value of the outstanding preferred stock? b. If an investor purchased the preferred stock at the value calculated in , how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 12.0%? a. The market value of the outstanding preferred stock is $ per share. (Round to the nearest cent.)

Explanation / Answer

MARKET VALUE OF PREFERRED STOCK 55.33980583 PREFERRED DIVIDEND 5.7 ANNUAL RATE OF RETURN 10.30% IF REQUIRED RATE OF RETURN INCREASED T0 12% MARKET PRICE OF SHARES 47.5 PREFERRED DIVIDEND 5.7 ANNUAL RATE OF RETURN 12.00% HE WILL LOOSE IF REQUIRED RATE OF RETURN INCREASED TO 12% -7.839805825 PER SHARE

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