Question

10 --5% preferred with a par of 500 will pay a quarterly dividend of____________.

11 --If the preferred mentioned above should yield 10%, what is its market price?

12 --If a preferred also allows its shareholders to share in the common dividend it is called ________________.

Answer 1

10.

Company is paying dividend of 5% of par value 500.

Hence annual dividend paid=500*5%=25.

Hence quarterly dividend paid=25/4=6.25

11.

The preferred is paying 25 as annual dividend and the total future value shall be 525.

To get the yeild of 10%, the amount should be discounted by 10% to the present value.

Hence market price=future value/(1+i)

525/(1+10/100))

=477.27

12.

If the preferred share holders are given right in the common dividend then are called common share holders.