What would be the value of rolen preferred stock

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Black Ltd., a constant growth firm, has just paid a dividend, D0, of $0.95 per share. Its stock is now selling for $75.00 per share. The firm's stock is 1.5 times as volatile as the market. The expected rate of return on the market is 5% and the yield on government securities is 3%. If the stock is in equilibrium, what rate of growth is expected?

A major chemical manufacturer has experienced a market re-evaluation lately due to a number of lawsuits. The firm has a bond issue outstanding with 15 years remaining to maturity and a coupon rate of 8% (paid semi-annually). The required (current) rate has now risen to an effective annual yield of 16.64%.

Rolen Riders issued preferred stock with a stated dividend of 6% of par. Preferred stock of this type currently yields 7%, and the par value is $25. Assume dividends are paid annually.

Problem 1: What is the value of Rolen's preferred stock?

Problem 2: Suppose interest rate levels rise to the point where the preferred stock now yields 9%. What would be the value of Rolen's preferred stock?

Reference no: EM132756019

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