Wallace Container Company issued $100 par value preferred stock 10 years ago. The stock provided a 7 percent yield at the time of issue. The preferred stock is now selling for $63. What is the current yield or cost of the preferred stock? (Disregard flotation costs.) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Question

Johan Hendrix

Business

7 October, 07:52

Wallace Container Company issued $100 par value preferred stock 10 years ago. The stock provided a 7 percent yield at the time of issue. The preferred stock is now selling for $63. What is the current yield or cost of the preferred stock? (Disregard flotation costs.) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

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Marin Travis · Answer 1

Answer: kp = D/Po

D = 0.07 X $100 = $7

kp = 7/63

kp = 11.11%

Explanation: The dividend paid on the preferred stock is 7 percent of the par value and the current market price is $63. Thus, the cost of preferred stock can be obtained by dividing the dividend paid by the current market price of the preferred stocks.