返回列表 发帖

Reading 60: Equity Valuation: Concepts and Basic Tools-LOS d

Session 14: Equity Analysis and Valuation
Reading 60: Equity Valuation: Concepts and Basic Tools

LOS d: Calculate the intrinsic value of a non-callable, non-convertible preferred stock.

 

 

A preferred stock’s dividend is $5 and the firm’s bonds currently yield 6.25%. The preferred shares are priced to yield 75 basis points below the bond yield. The price of the preferred is closest to:

A)
$5.00.
B)
$90.91.
C)
$80.00.


 

Preferred stock yield (Kp) = bond yield – 0.75% = 6.25% ? 0.75% = 5.5%

Value = dividend / Kp = $5 / 0.055 = $90.91.

Calculate the value of a preferred stock that pays an annual dividend of $5.50 if the current market yield on AAA rated preferred stock is 75 basis points above the current T-Bond rate of 7%.

A)
$42.63.
B)
$70.97.
C)
$78.57.


kpreferred = base yield + risk premium = 0.07 + 0.0075 = 0.00775

ValuePreferred = Dividend / kpreferred

Value = 5.50 / 0.0775 = $70.97

TOP

If a preferred stock that pays a $11.50 dividend is trading at $88.46, what is the market’s required rate of return for this security?

A)
11.76%.
B)
7.69%.
C)
13.00%.


From the formula: ValuePreferred Stock = D / kp, we derive kp = D / ValuePreferred Stock = 11.50 / 88.46 = 0.1300, or 13.00%.

TOP

The yield on a company’s 7.5%, $50 par preferred stock is 6%. The value of the preferred stock is closest to:

A)
$12.50.
B)
$50.00.
C)
$62.50.


The preferred dividend is 0.075($50) = $3.75. The value of the preferred = $3.75 / 0.06 = $62.50.

TOP

Assuming a discount rate of 15%, a preferred stock with a perpetual dividend of $10 is valued at approximately:

A)
$1.50.
B)
$66.67.
C)
$8.70.


The formula for the value of preferred stock with a perpetual dividend is: D / kp, or 10.0 / 0.15 = $66.67.

TOP

A company has 8 percent preferred stock outstanding with a par value of $100. The required return on the preferred is 5 percent. What is the value of the preferred stock?

A)
$152.81.
B)
$100.00.
C)
$160.00.


The annual dividend on the preferred is $100(.08) = $8.00. The value of the preferred is $8.00/0.05 = $160.00.

TOP

A company has 6% preferred stock outstanding with a par value of $100. The required return on the preferred is 8%. What is the value of the preferred stock?

A)
$75.00.
B)
$92.59.
C)
$100.00.


The annual dividend on the preferred is $100(.06) = $6.00. The value of the preferred is $6.00/0.08 = $75.00.

TOP

What is the value of a preferred stock that is expected to pay a $5.00 annual dividend per year forever if similar risk securities are now yielding 8%?

A)
$62.50.
B)
$40.00.
C)
$60.00.


$5.00/0.08 = $62.50.

TOP

The preferred stock of the Delco Investments Company has a par value of $150 and a dividend of $11.50. A shareholder’s required return on this stock is 14%. What is the maximum price he would pay?

A)
$150.00.
B)
$82.14.
C)
$54.76.


Value of preferred = D / kp = $11.50 / 0.14 = $82.14

TOP

返回列表