Preferred Stock Valuation

2. You are analyzing a share of XYZ Company preferred stock for possible purchase.

Par value $100

Dividend rate 10% per year

Payment schedule quarterly

Maturity date

Your required rate of return for this stock is 6% per year, compounded quarterly. The current market price of the stock is $150 per share.

A. Draw a time line showing the expected dividends for this preferred stock.

B. Calculate the value of this preferred stock based on the required rate of return.

C. Calculate the expected return based on the market price.

D. Should you invest in the stock? Why or why not? Be sure to use your results from BOTH parts B and C above.