Question

Earley Corporation issued perpetual preferred stock with a 12% annual dividend. The stock currently yields 9%, and its par value is $100.

What is the stock's value? Round your answer to two decimal
places.

$

Suppose interest rates rise and pull the preferred stock's yield
up to 15%. What is its new market value? Round your answer to two
decimal places.

$

Answer #1

**Earley Corporation issued perpetual preferred stock with
a 12% annual dividend. The stock currently yields 9%, and its par
value is $100.**

**annual dividend= 12% of $100 = $12**

**current yield = 9% = 0.09**

**Stock value = annual dividend/ current
yield**

**= $12/0.09**

**= $133.33**

**Suppose interest rates rise and pull the preferred
stock's yield up to 15%**

**new market value of stock = $12/0.15 = $80.**

**Hence, the market value falls to $80 with the rise in
stocks yield from 9% to 15%**

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$
Suppose interest rates rise and pull the preferred stock's yield
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$

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