Question

X‐Tech issued preferred shares many years ago. They carry a fixed dividend of $7 per share....

X‐Tech issued preferred shares many years ago. They carry a fixed dividend of $7 per share. With the passage of time, yields have soared from the original 12 percent to 16 percent (yield is the same as required rate of return).   

a. What was the original issue price? (Round the final answer to 2 decimal places.)

Original price of preferred share           $  

b. What is the current value of a X‐Tech preferred share? (Round the final answer to 2 decimal places.)

     

Current price of preferred share           $  

      

c. If the yield on the Preferred Stock Index declines, how will the price of these preferred shares be affected?

     

  • The price of preferred stock will increase.

  • The price of preferred stock will decrease.

A preferred share of Hilton Chocolate Company pays an annual dividend of $8.80. It has a required rate of return of 11 percent.

Compute the price of a preferred share.

Price of preferred share           $

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