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PNC Bank is considering issuing preferred stock. The dividend on the preferred stock would be $1.5 per share and begin at the end of this year. The CAPM for its preferred stock is estimated to be 0.8. Assume that the risk-free rate is 2% and the market risk premium is 7.7%.

(a) What is the price of PNC Bank's preferred stock?

(b) PNC Bank is also considering preferred stock with a lower dividend of $1 per share. What is the price of this preferred stock?

(c) PNC Bank thinks that its estimate of the market risk premium should be forward- looking. You should find a forward-looking estimate of the market risk premium and recalculate the price of the PNC Bank's preferred stock in parts (a) and (b). Please provide the source of your forward-looking estimate of the market risk premium.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92816832

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