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    purp90's Avatar
    purp90 Posts: 1, Reputation: 1
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    #1

    Jun 16, 2009, 09:34 AM
    Preferred Stock Valuation
    Rolen Riders issued preferred stock with a stated dividend of 10% of par. Preferred stock of this type currently yields 8%, and the par value is 100. ASsume dividends are paid annually. What is the value of Rolen's prefferred stock? Suppose interest rate levels rise to the point where the prefrred stock now yields 12% What would be the value of Rolen's preferred stock?
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
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    #2

    Jun 21, 2009, 04:59 AM

    At 8% yield, the preferred stock will sell at premium
    (100 x 10%)/.08 = $125
    At 12% yield it will sell at discount
    (100 x 10%)/.12 = $83.33
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