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    Preferred stock valuation

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    Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred stock issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar-riskpreferred 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 preferreds has risen to 10.5%? explain.

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    Solution Preview

    a) what is the market value of the outstanding preferred stock?

    Preferred stock is a perpetuity and the market value is the present value of all dividends. For a ...

    Solution Summary

    The solution explains how to calculate the price of a preferred stock

    $2.49

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