Mr. MT wishes to estimate the value of its outstanding preferred stock. The preferred issue has a $75

par value and pays an annual dividend of $7 per share. Similar-risk preferred stocks are currently

earning a 9.2% annual rate of return.

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 he gain or

lose per share if he sells the stock when the required re-turn on similar-risk preferred stocks has risen to

10%? Explain.