Ezzell Corporation issued perpetual preferred stock with a 10%annual dividend. T

Question

Ezzell Corporation issued perpetual preferred stock with a 10%annual dividend. The stock currently yields 8% of par, and its parvalue is $100. a- what is the stock's value? b- suppose interest rate rise amd pull the preferred stock'syield up to 12%, what is its new market value? Ezzell Corporation issued perpetual preferred stock with a 10%annual dividend. The stock currently yields 8% of par, and its parvalue is $100. a- what is the stock's value? b- suppose interest rate rise amd pull the preferred stock'syield up to 12%, what is its new market value?

Explanation / Answer

Par Value of Perpetual Preferred Stock= $100 Perpetual Preferred Stock AnnualDividend = 10% of par value Annual Dividend = $10 Preferred Stock's Yield = 8% Dividend Yield = AnnualDividend per Share / Current Price per share Current Stock Value = $10 / 0.08 Current Stock Value = $125 (b) If the preferred stock's yield riseup to 12%, the new market value will be:     New Market Value = $10 /0.12     New Market Value ofPreferred Stock = $83.33 Par Value of Perpetual Preferred Stock= $100 Perpetual Preferred Stock AnnualDividend = 10% of par value Annual Dividend = $10 Preferred Stock's Yield = 8% Dividend Yield = AnnualDividend per Share / Current Price per share Current Stock Value = $10 / 0.08 Current Stock Value = $125 (b) If the preferred stock's yield riseup to 12%, the new market value will be:     New Market Value = $10 /0.12     New Market Value ofPreferred Stock = $83.33

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