8) Natal Corp. has issued some $100 par preferred stock with a dividend of 10% of...
8) Natal Corp. has issued some $100 par preferred stock with a dividend of 10% of par value. The required rate of return on the preferred stock is 9%.
a) Compute the current value of the preferred stock.
b) If the preferred stock sells in the market at $115 per share, what is the expected rate of return from the preferred stock.
c) If Natal announces that it will redeem the preferred stock in 4 years at a redemption price of $140 per share, compute the rate of return from the preferred stock.
Homework Answers
a.
Annual Dividend = 0.10(100) = $10
Current Value of Preferred Stock = 10/0.09 = $111.11
b.
Expected Return = 10/115 = 8.70%
c.
Rate of Return = 10/140 = 7.14%
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