Ezzell Corporation issued perpetual preferred stock with a 10percent annual divi

Question

Ezzell Corporation issued perpetual preferred stock with a 10percent annual divident. The stock currently yields 8 percentand its par value is $100. A. What is the stock's value? B. Suppose interest rates rise and pull the perferredstock's yield up to 12 percent. What would be its new marketvalue? Ezzell Corporation issued perpetual preferred stock with a 10percent annual divident. The stock currently yields 8 percentand its par value is $100. A. What is the stock's value? B. Suppose interest rates rise and pull the perferredstock's yield up to 12 percent. What would be its new marketvalue?

Explanation / Answer

Preferred Stock annualdividend ($100*10%) $10 Curre Yield on PreferredStock 8% Par Value of the Stock $100 (A) Current Stock Value= Annual Preferred Dividend / Current Yield on Preferredstock      CurrentStock Value = $10 / 0.08     Current Stock Value = $125 If the Cure Yield onPreferred stock rises to 12%, the new market value of stock willbe: (B) Current Stock Value = $10 /0.12      NewMarket Value = $83.33 Preferred Stock annualdividend ($100*10%) $10 Curre Yield on PreferredStock 8% Par Value of the Stock $100 (A) Current Stock Value= Annual Preferred Dividend / Current Yield on Preferredstock      CurrentStock Value = $10 / 0.08     Current Stock Value = $125 If the Cure Yield onPreferred stock rises to 12%, the new market value of stock willbe: (B) Current Stock Value = $10 /0.12      NewMarket Value = $83.33

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