toLknolgers and, as with common stock, preferred stockholders can benefit from a
ID: 2779958 • Letter: T
Question
toLknolgers and, as with common stock, preferred stockholders can benefit from an appreciation in the value of the firm's stock securities. Consider the following case of Marston Manufacturing Company: Marston Manufacturing Company pays an annual dividend rate of 8.00% on its preferred stock that currently returns 10.72% and has a par value of $100.00 per share, what is the value of Marston's preferred stock? O $100.00 per share $74.63 per share $89.56 per share O$111.94 per share Suppose that due to high inflation, interest rates rise and pull the preferred stock's yield to 13.94%. The value of the preferred stock will Grade it Now DOLL Tab VW Caps lockExplanation / Answer
B.$74.63
given that dividend is 8% =>$100*8% =>$8.
but this stock currently returns 10.72%=>0.1072
=>( $8 / stock price )= 0.1072
=>(stock price = $8/0.1072
=>stock price =$74.63.
Marston's preferred stock value is $74.63.
b.Suppose yield is 13.94%.due to inflation.
the value of stock = dividend / yield
=>$8/ 0.1394
=>$57.39.
Suppose that due to high inflation, interest rates rise and pull the preferred stock's yield to 13.94%. The value of preferred stock will DECREASE to $57.39.
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