TaraWithers
Oct 16, 2012, 04:01 PM
A preferred stock is expected to pay every quarter into indefinite future, the following dividend yield, dented by DY:
DY = The annualized yield on 3-months Treasury Bill, prevailing at the time of payment +4%
The par value of the preferred stock is $100. Suppose the annualized yield on 3-month Treasury Bill is expected to be as: 1.5% at the first quarter, 2% at the end of the 2nd quarter, 2.5% at the end of the 3rd quarter, 3% at the end of the 4th quarter and 4% at the end of the 5th quarter and thereafter into indefinite future. Suppose the required expected rate of return is 6% per annum in the first four quarters and 8% per annum thereafter into indefinite future.
Calculate the current price of the preferred stock?
DY = The annualized yield on 3-months Treasury Bill, prevailing at the time of payment +4%
The par value of the preferred stock is $100. Suppose the annualized yield on 3-month Treasury Bill is expected to be as: 1.5% at the first quarter, 2% at the end of the 2nd quarter, 2.5% at the end of the 3rd quarter, 3% at the end of the 4th quarter and 4% at the end of the 5th quarter and thereafter into indefinite future. Suppose the required expected rate of return is 6% per annum in the first four quarters and 8% per annum thereafter into indefinite future.
Calculate the current price of the preferred stock?