a) If a preferred stock pays an annual dividend of $6 and investors can earn 10 percent

Question:

a) If a preferred stock pays an annual dividend of $6 and investors can earn 10 percent on alternative and comparable investments, what is the maximum price that should be paid for this stock?

b) If the preferred stock in part (a) had a call feature and investors expected the stock to be called for $100 after ten years, what is the maximum price that investors should pay for the stock?

c) If investors can earn 12 percent on comparable investments, what should be the price of the preferred stock in part (a)? What would be the price if comparable yields are 8 percent? What generalization do these answers imply?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...