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servlet/quiz?quiz-action-takeQuiz&quiz;_probGuid-QNAPC0A801 01 00000041 ebc5600a0000&ctx-ream-0057;&ck;= n Graded Assignment | Read Chapter 9 | Back to Assignment Due Monday 07.09.18 at 11:45 PM Attempts 1 Keep the Highest: 1/2 7. Valuing preferred stock Aa Aa? Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy However, similar to bonds, preferred stockholders receive a fixed payment-their dividend-before the companys residual earnings are paid out to its common stockholders and, as with common stock, preferred stockholders can benefit from an appreciation in the value of the firm's stock securities Consider the following case of Edinburgh Exports: Edinburgh Exports pays an annual dividend rate of 8.80% on its preferred stock that currently retums 11.79% and has a par value of $100.00 per share. What is the value of Edinburgh's preferred stock? $100.00 per share O $111.96 per share O $74.64 per share O $89.57 per share .33% The value of the Suppose that due to high inflation, interest rates rise and pull the preferred stock's yield to preferred stock will decrease increase Flash Player WIN 30,0,0,113 QJ 3 34.1 © 2D04-2016 Aena. At nghts,served. Grade It Now 2013 Cengage Learning except as noted. All rights reserved Continue without saving DOLL F10 F11 F12 F7 F8 F9 F6 F3 F4 F5 F2 8 8 9 0 4 5 6 2 3Explanation / Answer
Preferred stock value = Dividend/Return
= 8.8% * 1000/0.1179
= 74.64 option C
Ans 2 Decreases , as return inversely proportional to preferred share value.
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