Bedford Mattress Company issued preferred stock many years ago. It carries a fix

Question

Bedford Mattress Company issued preferred stock many years ago. It carries a fixed dividend of $11 per share. With the passage of time, yields have gone down from the original 12 percent to 8 percent (yield is the same as required rate of return).

(a) What was the original issue price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Original price $

(b) What is the current value of this preferred stock?(Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Current value $

Explanation / Answer

Yield = Dividend per share/ market price per share * 100

a. Original yield = 12%
12% = 11/Original Market Price * 100
Original market price = 1100/12 = $91.67

b. Current yield = 8%
8% = 11/Original Market Price * 100
Original market price = 1100/8 = $137.50

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