Explain Finding the required rate of return and valuation of Preferred Stock
Preferred stock valuation:
1. Fee Founders has perpetual preferred stock outstanding that sells for $38.00 a share and pays a dividend of $3.00 at the end of each year. What is the required rate of return? Round the answer to the nearest hundredth. _____%
2. Preferred stock valuation Ezzell Corporation issued perpetual preferred stock with a 11% annual dividend. The stock currently yields 9%, and its par value is $100.
a. What is the stock's value? Round the answer to the nearest hundredth.
b. Suppose interest rates rise and pull the preferred stock\'s yield up to 11%. What would be its new market value? Round the answer to the nearest hundredth.