Preferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $100 and pays an annual dividend of $5.40 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 10.4 %.
a) What is the market value of the outstanding preferred stock?
b) If an investor purchases the preferred stock at the value calculated in part a , how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 12.2 %?
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