Preferred Stock Value
Not what you're looking for?
Preferred stock is a hybrid security that is an equity holding but behaves more like a bond, as far as stock price movements. Preferred stock has no voting rights, and in the event of bankruptcy, preferred shareholder claims follow bondholders and precede common shareholders. Preferred dividends are contractual, in that while the stated dividend may not be paid in a given year due to low earnings and cash flows, all prior years' dividends must be paid-up to preferred stockholders before any dividends are paid to common stockholders. Consequently, preferred stockholders can generally count on a certain amount of income over a period of years, although some years' income may be made up in later years.
Years ago, preferred stock was issued as a perpetuity- it never matured. However, in recent decades, preferred stock is issued with a maturity date as would a bond. This practice assists in security valuation for financial and insurance companies whose assets must be assessed relative to its liabilities.
Apply this concept.
A firm issued a preferred stock which matures in 30 years and carries a maturity value of $45. The dividend is $4 per year over the 30 year period. The current market discount rate for this stock is 8%. What is the value of the preferred share?
Purchase this Solution
Solution Summary
The solution does a great job of answering the question. The solution is brief and concise and very easy to follow along. All the steps are clearly shown and Excel formulas are provided so that the student can answer similar questions in the future. It can be easily understood by anyone with a basic understanding of the topic. Overall, an excellent solution.
Purchase this Solution
Free BrainMass Quizzes
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.