1. Expected return on preferred stock

Marcella Jusgettinbi has worked for a number of years at her current job. She is a packer at the Big Flavor Orange Juice Company in Ormond Beach, Florida. Recently, she received a letter from Art Finkel, attorney handling the estate of her late aunt, Betsy Murdock. She was bequeathed 400 shares of preferred stock of June Bride Wedding Dresses, Inc. These stocks currently sell for $80 per share and pay annual dividends of $5.80 per share.

Required:

A. What is Marcellas expected return?

B. Marcella would like to earn a minimum of 8% annually on this investment. Given the current price, would you advise Marcella to sell the stock, buy more stock, or just hold on to what she has received from the estate?

C. Marcella is also considering buying a sporty new convertible, which costs $25,000. If she were to sell the stock at $70 per share to her friend Helen Helpalott would she have enough cash to buy the car? What would you advise her to do?