Question

What should be the price of the following preferred stock if comparable securities yield 7 percent?...

What should be the price of the following preferred stock if comparable securities yield 7 percent? DeSoto Inc., $8 preferred ($100 par) with mandatory retirement after 20 years?

A$110.59

B$25.84

C $84.75

D $56.78

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Homework Answers

Answer #1

The price of the stock is computed as shown below:

= $ 8 / 1.071 + $ 8 / 1.072 + $ 8 / 1.073 + $ 8 / 1.074 + $ 8 / 1.075 + $ 8 / 1.076 + $ 8 / 1.077 + $ 8 / 1.078 + $ 8 / 1.079 + $ 8 / 1.0710 + $ 8 / 1.0711 + $ 8 / 1.0712 + $ 8 / 1.0713 + $ 8 / 1.0714 + $ 8 / 1.0715 + $ 8 / 1.0716 + $ 8 / 1.0717 + $ 8 / 1.0718 + $ 8 / 1.0719 + $ 8 / 1.0720 + $ 100 / 1.0720

= $ 110.59 Approximately

So, the correct answer is option A

Feel free to ask in case of any query relating to this question

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