Question

# Earley Corporation issued perpetual preferred stock with a 12% annual dividend. The stock currently yields 9%,...

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.
\$

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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