[Complexity07]

North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $6 per share. With the passage of time, yields have soared from the original 6 percent to 14 percent (yield is the same as required rate of return).

a)What was the original issue price?

b)What is the current value of this preferred stock?

c)If the yield on the Standard & Poor's Preferred Stock Index declines, how will the price of the preferred stock be affected?

[Shelly104]

a. What was the original issue price? $5.66
Pp = Dp / (1 + Kp) 1
Pp = 6.00 / (1 + .06)1= 5.66
b. What is the current value of this preferred stock? $ 5.26
Pp = Dp / (1 + Kp) 1
Pp = 6.00 / (1 + .14) = 5.26
c. If the yield on the Standard & Poor�s preferred stock index declines, how will the
price of the preferred stock be affected?
The preferred stock price will increase