An issue of 8.5% Series C preferred stock has a par value of $75 million or $40 per share and was sold to investors several years ago at par. According to the terms of the issue, the preferred is scheduled to be redeemed in 25 years at its par value of $40 per share. Dividends are paid quarterly but analyzed as if paid annually. The stock is currently trading at a discount for $35 per share.

13. If the issuer buys shares in the market and is able to submit them to the Trustee at the next redemption is lieu of cash, what effect this will have on the expected rate of return for investors?

1. The expected rate of return will be reduced.
2. The expected rate of return will be increased.
3. The expected rate of return will be unchanged.
4. All of the above answers are correct.
5. None of the above answers are correct.