Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferredstock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of astock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuingcompanies can suspend the payment of their preferred dividends without throwing the company into bankruptcy.However, similar to bonds, preferred stockholders receive a fixed payment-their dividend-before the company'sresidual earnings are paid out to its common stockholders and, as with common stock, preferred stockholders canbenefit from an appreciation in the value of the firm's stock securities.Consider the following case of Wellington Industries:Wellington Industries pays an annual dividend rate of 11.20% on its preferred stock that currently returns 15.01%and has a par value of $100.00 per share. What is the value of Wellington's preferred stock?O $100.00 per share$89.54 per shareO $111.93 per share$74.62 per shareSuppose that due to high inflation, interest rates rise and pull the preferred stock's yield to 19.51%. The value of thepreferred stock will

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Asked Sep 21, 2019
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Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred
stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a
stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing
companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy.
However, similar to bonds, preferred stockholders receive a fixed payment-their dividend-before the company's
residual earnings are paid out to its common stockholders and, as with common stock, preferred stockholders can
benefit from an appreciation in the value of the firm's stock securities.
Consider the following case of Wellington Industries:
Wellington Industries pays an annual dividend rate of 11.20% on its preferred stock that currently returns 15.01%
and has a par value of $100.00 per share. What is the value of Wellington's preferred stock?
O $100.00 per share
$89.54 per share
O $111.93 per share
$74.62 per share
Suppose that due to high inflation, interest rates rise and pull the preferred stock's yield to 19.51%. The value of the
preferred stock will
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Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders receive a fixed payment-their dividend-before the company's residual earnings are paid out to its common stockholders and, as with common stock, preferred stockholders can benefit from an appreciation in the value of the firm's stock securities. Consider the following case of Wellington Industries: Wellington Industries pays an annual dividend rate of 11.20% on its preferred stock that currently returns 15.01% and has a par value of $100.00 per share. What is the value of Wellington's preferred stock? O $100.00 per share $89.54 per share O $111.93 per share $74.62 per share Suppose that due to high inflation, interest rates rise and pull the preferred stock's yield to 19.51%. The value of the preferred stock will

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Expert Answer

Step 1

Calculate the value of prefer...

Value of preferred stock = Par value x Annual dividend rate
Rate of return
$100x11.20%
15.01%
$11.20
0.1501
S74.6169220519654 or |S74.62|
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Value of preferred stock = Par value x Annual dividend rate Rate of return $100x11.20% 15.01% $11.20 0.1501 S74.6169220519654 or |S74.62|

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