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Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return.

a. What is the market value of the outstanding preferred stock?

b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 10.5%? Explain.

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Joshua Stredder
Joshua StredderLv10
29 Jan 2021

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Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return. A) What is the market value of the outstanding preferred stock? B) If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 10.5%? Explain.

Jones Design wishes to estimate the value of its outstanding preferred stock. The preferrred issue has a par value of $90 and pays an annual dividend of $5.50 per share. Similar risk-preferred stocks are currently earning an annual rate of return of 8.3%

A.) The market value of the outstanding preferred stock is $? per share

B.) If the requred return on the similar-risk preferred stocks has risen to 9.4% the value of the stock will be $?

C.) If an investor purchased the prefered stock at the value calculated in part a and sells the stock when the required return on the similiar risk preferred stocks has risen to 9.4% the gain or loss is $? per share.

The Weatherfield Way Construction Company has common and preferred stock outstanding. The preferred stock pays an annual dividend of $7.50 per share, and the required rate of return for similar preferred stocks is 11%. The common stock paid a dividend of $3.00 per share last year, but the company expected that earnings and dividends will grow by 25% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return on similar common stocks is 13%

  1. What is the per-share value of the company's preferred shares?
  2. What is the per-share value of the company's common stock?
  3. Calculate the expected market price of the share in one year.
  4. Calculate the expected dividend yield and capital gains yield expected at the end of the first year

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