his Question: 1 pt 10f 10 (0 complete. ? This Quiz: 10 pts possible Preferred st
ID: 2615902 • Letter: H
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his Question: 1 pt 10f 10 (0 complete. ? This Quiz: 10 pts possible Preferred stock valuation Jones Design weshes to estimate the value of ts has a par value of $100 and pays an annual dividend of S4 20 per share ma nik prefened steoks are curmenity earming an a What is the market value of the otstanding preferred stodk? b. If an investor purchased the preered stock at the value calcuated in part a, how much does she gain or lese per share f she selts the stock when the required turn an simil-riolk pretemed stocks has nisen to 11.18 a. The market value of the outbstanding prefemed stock is per share (Round to the nearest cent b. ifthe reared return on samtar-risk preferred stocks has men to 111%, hevalue ofthn stock wit bet[ per nare mond to the nearest ent ) it an nvestor purchased the peterred stock at the value calculated in part a and sels the stock when the requred retum on siml-dk reterred stocks has risen to 11 1%, the oa or os isper shane. Round to the seurest cnt Enter a postve number for a gain and a negative number for a loss )Explanation / Answer
a. Market Value of preferred stock
= Annual Dividend per share / Current Annual rate of return
= $ 4.20 / 0.096
= $ 43.75
b. If the required return on stock is 11.1% then
Value of stock = Annual Dividend per share / Required rate of return
= $ 4.20 / 0.111
= $ 37.84
Now if an investor purchased the stock at the value calculated in (a) that is $43.75 and sells when the required return has risen to 11.1% that is sells at $ 37.84 then he stands at loss
Gain / Loss = Stock sale price - stock purchase price
= $ 37.84 - $ 43.75
= - $5.91
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