If a preferred stock pays an annual dividend of $6 and investors can earn 10 per

Question

If a preferred stock pays an annual dividend of $6 and investors can earn 10 percent on alternative and comparable investments, what is the maximum price that should be paid for this stock? If the preferred stock in part (a) had a call feature and investors expected the stock to be called for SI00 after ten years, what is the maximum price that investors should pay for the stock? If investors can earn 12 percent on comparable investments, what should be the price of the preferred stock in part (a)? What would be the price if comparable yields are 8 percent? What generalization do these answers imply.

Explanation / Answer

Answer:a Price=Dividend/Return

=$6/0.10=$60

Answer:c Price=$6/0.12=50

Price=$6/0.08=75

It imply that if Yield return is less than price goes up.

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