Question

​(Preferred stockholder expected return​) You own 150 shares of Budd Corporation preferred stock at a market...

​(Preferred stockholder expected return​) You own 150 shares of Budd Corporation preferred stock at a market price of $23 per share. Budd pays dividends of ​$ 1.50. What is your expected rate of​ return? If you have a required rate of return of 5 ​percent, should you sell your shares or buy more of the​ stock? a. Your expected rate of return is ​%. ​(Round to two decimal​ places.)

Homework Answers

Answer #1

Market Price of Preferred Stock = $23 per share

Annual Dividend of Preferred Stock = $1.50

Calculating the expected Return of Preferred Stock:-

Expected Return = Annual Dividend/Market Price

Expected Return = $1.50/$23

Expected Return of Preferred Stock = 6.52%

- As Preferred Stock provides an expected return of 6.52% while your required rate of return is 5 % which is less than the provided by Preferred Stock. Thus, it means the Preferred Stock undervlaued.

Thus, you should Buy more of the Stocks.

If you need any clarification, you can ask in comments.    

If you like my answer, then please up-vote as it will be motivating       

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
​(Preferred stock expected return​) You are planning to purchase 150 shares of preferred stock and must...
​(Preferred stock expected return​) You are planning to purchase 150 shares of preferred stock and must choose between stock in the Jackson Corporation and stock in the Fields Corporation. Your required rate of return is 9.07 percent. If the stock in Jackson pays a dividend of ​$ 1.75 and is selling for ​$ 19 and the stock in Fields pays a dividend of ​$ 2.50 and is selling for ​$ 28​, which stock should you​ choose? What is the expected...
You own 1,800 shares of stock in Avondale Corporation. You will receive a dividend of $1.50...
You own 1,800 shares of stock in Avondale Corporation. You will receive a dividend of $1.50 per share in one year. In two years, Avondale will pay a liquidating dividend of $80 per share. The required return on Avondale stock is 25 percent.    Ignoring taxes, what is the current share price of your stock? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)      Share price $    If you would rather have equal...
You own 1,650 shares of stock in Avondale Corporation. You will receive a dividend of $1.50...
You own 1,650 shares of stock in Avondale Corporation. You will receive a dividend of $1.50 per share in one year. In two years, Avondale will pay a liquidating dividend of $54 per share. The required return on Avondale stock is 20 percent.    Ignoring taxes, what is the current share price of your stock?       If you would rather have equal dividends in each of the next two years, how many shares would you sell in one year?...
You own 1,800 shares of stock in Avondale Corporation. You will receive a $1.50 per share...
You own 1,800 shares of stock in Avondale Corporation. You will receive a $1.50 per share dividend in one year. In two years, the company will pay a liquidating dividend of $80 per share. The required return on the company's stock is 25 percent. a. Ignoring taxes, what is the current share price of your stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If you would rather have equal dividends in...
(Common stockholder expected return ) Bennett, Inc. common stock currently sells for $22.75 per share. The...
(Common stockholder expected return ) Bennett, Inc. common stock currently sells for $22.75 per share. The company's executives anticipate a constant growth rate of 9.1 percent and an end-of-year dividend of $1.50. a. What is your expected rate of return if you buy the stock for $22.75 ? b. If you require a return of 16 percent, should you purchase the stock? answer in excel please
You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share...
You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share dividend in one year. In two years, the company will pay a liquidating dividend of $75 per share. The required return on the company's stock is 20 percent. b. If you would rather have equal dividends in each of the next two years, how many shares would you sell in one year? (Do not round intermediate calculations and round your answer to 2 decimal...
Return on Common Stock You buy a share of The Ludwig Corporation stock for $21.70. You...
Return on Common Stock You buy a share of The Ludwig Corporation stock for $21.70. You expect it to pay dividends of $1.00, $1.0780, and $1.1621 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $27.18 at the end of 3 years. Calculate the growth rate in dividends. Round your answer to two decimal places.   % Calculate the expected dividend yield. Round your answer to two decimal places.   % Assuming that the...
You own 1,900 shares of stock in Avondale Corporation. You will receive a dividend of $2.00...
You own 1,900 shares of stock in Avondale Corporation. You will receive a dividend of $2.00 per share in one year. In two years, Avondale will pay a liquidating dividend of $57 per share. The required return on Avondale stock is 20 percent.    Ignoring taxes, what is the current share price of your stock? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)      Share price $    If you would rather have equal...
Return on Common Stock : You buy a share of The Ludwig Corporation stock for $19.90....
Return on Common Stock : You buy a share of The Ludwig Corporation stock for $19.90. You expect it to pay dividends of $1.04, $1.1170, and $1.1997 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $24.65 at the end of 3 years. a. Calculate the growth rate in dividends. Round your answer to two decimal places.   % b. Calculate the expected dividend yield. Round your answer to two decimal places.   %...
You own 2,200 shares of stock in Avondale Corporation. You will receive a $1.40 per share...
You own 2,200 shares of stock in Avondale Corporation. You will receive a $1.40 per share dividend in one year. In two years, the company will pay a liquidating dividend of $48 per share. The required return on the company's stock is 20 percent. a. Ignoring taxes, what is the current share price of your stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If you would rather have equal dividends in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT