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Earley Corporation issued perpetual preferred stock with a 10% annual dividend. The stock currently yields 10%,...

Earley Corporation issued perpetual preferred stock with a 10% annual dividend. The stock currently yields 10%, and its par value is $100. Round your answers to the nearest cent.

  1. What is the stock's value?
    $   
  2. Suppose interest rates rise and pull the preferred stock's yield up to 12%. What is its new market value?
    $  
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Answer #1

Information provided:

Annual dividend rate= 10%

Annual dividend= 0.10*100= $10

Dividend yield= 10%

Par value= $100

a.Stock’s value= Annual dividend/ Annual yield

                            = $10/ 0.10

                            = $100

b.New market value = $10/ 0.12

                             = $83.33

In case of any query, kindly comment on the solution.

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