Jones Design wishes to estimate the value of its outstanding preferred stock. Th

Question

Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred stock issue has an $120 par value and pays an annual dividend of $6.20 per share. Similar-risk preferred stocks are currently earning a 7.4% annual rate of return.
a) what is the market value of the outstanding preferred stock? (round to the nearest cent)
b) if the required return on similar-risk preferred stock has risen to 9.0% the value of the stock will be $______ per share (round to the nearest cent)

c) if an investor purchased the prefeered stock at the value calculated in part a and sells the stock when the required return on similar risk preferred stocks has risen to 9.0% the gain or loss is $ ___ per share

Explanation / Answer

Jones Design   Details Amt $ Prefernce share par value                   120.0 Annual Dividend                        6.2 Yield of similar risk preference share   7.4% a Market Price of Preference share=6.2/7.4%= $             83.78 b When Yield of similar risk preference share   9% Market Price of Preference share=6.2/9%= $             68.89 c When an investor purchase the stock @$83.78 and sells @ $68.89 , the loss per share is = $             14.89

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