The “Tigers of Old” company plan to issue new preferred stock on the first day of January. The preferred stock will have an 8% dividend paid annually at the end of each year. The par value of the preferred stock is $100 and the price that investors are willing to pay for the preferred stock when it is issued is $80.
(a). What is the required rate of return for the preferred stock?

(b). What is the duration of the preferred stock from part (a)?
(c). Suppose “Tigers Of Old” has a bond issued with modified duration of 10 and convexity of 140. If interest rates suddenly decrease by 150 basis points, by how much will the price of the bond change in percentage terms?

Answer rating: 100% (QA)

a Required rate of return for the preferred stock The required rate of return for a security is the ... View the full answer