48 Several years ago Trentham Ltd issued 10% preference shares at their face value of $100 per share.

a Calculate the cost of preference shares, assuming that they are currently selling for $120 per share.

b Assuming that the preference shares are currently selling for $100 per share, what is the investors’ required return?

c If investors in Trentham’s preference shares are currently buying and selling the shares for $80 per share, what is the current return the investors are demanding?

d Based on your answers above, what is the relationship between the investors’ required return (or the cost of Trentham Ltd’s preference shares) and the current value of preference shares?