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If the market demands a return of 11% on a preferred stock with a 7% coupon, at what price will it trade assuming a par of $100? (Round to the nearest cent and do not enter a dollar sign)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 10P

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Concept explainers

Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

Question

If the market demands a return of 11% on a preferred stock with a 7% coupon, at
what price will it trade assuming a par of $100? (Round to the nearest cent and do
not enter a dollar sign)

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