Hooks Althletics, Inc., has outstanding a preferred stock with a par value of $3

Question

Hooks Althletics, Inc., has outstanding a preferred stock with a par value of $30 that pays a dividend of $2.50.  The preferred stock is redeemable at the option of the stockholder in 10 years at a price equal to $30.  The stock may be called for redemption by the company in 15 years at a price of $32.50.  (Any stock that is not redeemed at the end of 10 years can be expected to be called by the company in 15 years.)  If you know that investors require a 15 percent pretax rate of return on this preferred stock, what is the current market value of this preferred stock?

Explanation / Answer

Preferred Stock Dividend (DP) = $2.50 Par Value of the Preferred stock = $30 Current Market Value of Preferred stock (PP) = DP /r Current Market Value of Preferred Stock (PP) = $2.50 / 0.15 Current Market Value of Preferred Stock (PP) =$16.67 Preferred Stock Dividend (DP) = $2.50 Par Value of the Preferred stock = $30 Current Market Value of Preferred stock (PP) = DP /r Current Market Value of Preferred Stock (PP) = $2.50 / 0.15 Current Market Value of Preferred Stock (PP) =$16.67
Hope this helps Preferred Stock Dividend (DP) = $2.50 Par Value of the Preferred stock = $30 Current Market Value of Preferred stock (PP) = DP /r Current Market Value of Preferred Stock (PP) = $2.50 / 0.15 Current Market Value of Preferred Stock (PP) =$16.67

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.