Problem 9-8 Preferred stock valuation Ezzell Corporation issued perpetual prefer
ID: 2713918 • Letter: P
Question
Problem 9-8
Preferred stock valuation
Ezzell Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%, and its par value is $100.
What is the stock's value? Round your answer to two decimal places.
$ {C}
Suppose interest rates rise and pull the preferred stock's yield up to 13%. What would be its new market value? Round your answer to two decimal places.
$
ANSWER FULLY AND EXPLAIN
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Preferred stock valuation
Ezzell Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 10%, and its par value is $100.
What is the stock's value? Round your answer to two decimal places.
$ {C}
Suppose interest rates rise and pull the preferred stock's yield up to 13%. What would be its new market value? Round your answer to two decimal places.
$
ANSWER FULLY AND EXPLAIN
Explanation / Answer
What is the stock's value? Round your answer to two decimal places.
Answer
stock's value = annual dividend % *par value / currently yields
stock's value = 8%*100 / 10%
stock's value = $ 80
Suppose interest rates rise and pull the preferred stock's yield up to 13%. What would be its new market value? Round your answer to two decimal places.
Answer
New market value = annual dividend % *par value / currently yields
New market value = 8%*100/13%
New market value = $ 61.54
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