Explore BrainMass

Explore BrainMass

    Valuation of Preferred Stock - Current and original Value

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $6 per share. With the passage of time, yields have soared from the original 6 percent to 14 percent (yield is the same as required rate of return). What was the original issue price? What is the current value of this preferred stock?If the yield on the Standard & Poor's Preferred Stock Index declines, how will the price of the preferred stock be affected?

    © BrainMass Inc. brainmass.com March 4, 2021, 7:47 pm ad1c9bdddf

    Solution Preview

    Preference stock formula is
    Yield = Fixed Dividend / Price of Preferred Stock

    What was the original issue price?
    6% = $6 / Price
    So we get original ...

    Solution Summary

    This problem explains how to calculate the original price and current price of a preferred stock. It also explains what will happen to the preferred stock price if there is change in the yield on the Standard & Poor's Preferred Stock Index. The concepts are explained with formula and calculations for easy understanding.