You want to estimate the cost of a firms hybrid security. The security was issued three years
Fantastic news! We've Found the answer you've been seeking!
Question:
You want to estimate the cost of a firm’s hybrid security. The security was issued three years ago at $50/security. The price is currently $54/security. It pays a semiannual dividend of $2.50/security. The company has the one-time option to pay a super dividend of $55/security in 5 years, which would cause the securities to expire (essentially, a buyback option). Your research indicates that the company will exercise this option with a probability of 20%. What is the annualized cost of this firm’s hybrid security capital?
i) 9.26%
ii) 9.32%
iii) 9.56%
Related Book For
Posted Date: