Purchase Solution

# Preferred stock- price, dividend yield, capital gains yield

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Preferred Products has issued preferred stock with an \$8 annual dividend that will be paid in perpetuity.
a. If the discount rate is 12 percent, at what price should the preferred sell?
b. At what price should the stock sell 1 year from now?
c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock?

##### Solution Summary

The solution calculates the price, dividend yield, the capital gains yield, and the expected rate of return of preferred stock

##### Solution Preview

Price of Preferred Stock=Dividend divided by Discount rate
Po= Div/ r
Div =Dividend in perpetuity
r=discount rate
Po= Current price

a. If the discount rate is 12%, at what price should the preferred sell?

r= 12%
Div= \$8
P0= \$66.67 =8/12%

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