North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $7 per share. With the passage of time, yields have soared from the original 9 percent to 8 percent (yield is the same as required rate of return).
a. What was the original issue price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Original Issue Price:
b. What is the current value of this preferred stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Current Value:
c. If the yield on the Standard & Poor’s Preferred Stock Index declines, how will the price of the preferred stock be affected?
- The price of preferred stock will increase
- The price of preferred stock will decrease