The formula for the valuation of a share of preferred stock is P0P0 = DpDp / kpkp. In this equation, the variable DpDp represents the _______ .

Piper is considering the purchase of 100 shares of the preferred stock of Wellington Industries. The stock carries a par value of $100 per share and an annual dividend rate of 6.25%. Alternative investments of comparable risk are generating yields of 7.00%. Given this information, the per-share value of Wellingtons preferred stock should be:

$66.97

$89.29

$111.61

$80.36

Piper has to postpone her purchase of Wellingtons preferred shares for just over six months. By the time she is ready to invest, the return on alternative investments of comparable risk has increased. She should expect the cost of her investment in Wellingtons preferred shares to be _______ expensive.

Assume that Piper delays her investment for another few months, and that when she is finally ready to make her 100-share investment in Wellington, the market price of Wellingtons preferred stock has changed to $120.54 per share. If she pays this price to acquire each share of Wellingtons preferred stock, what rate of return will Piper earn on her investment? Remember that the shares have a par value of $100 and a dividend rate of 6.25%.

4.93%

5.19%

4.15%

6.75%