Rolen Riders Company has preffered stock and common stock. It pays a fixed 8% annual dividend on its preferred stock with par value of 50 per share.

Question 2 (5 points) Rolen Riders Company has preferred stock and common stock. It pays a fixed 8% annual dividend on its preferred stock with par value of $50 per share. It has just paid $2 dividend per share on its common stock, and the dividend on the common stock is expected to grow at 5% per year indefinitely. The risk free interest rate is currently 4%. (a) (2 points) The preferred stock of Rolen Riders currently trades at $40 per share. What risk premium is required by the investors? (b) (3 points) The common stock of Rolen Riders currently trades at $30 per share. What risk (Hint: risk premium is the differen (Extra writing space on the next page) premium is required by the investors? ce between the expected return and the riskfree return)