1.) A preferred stock ($100 par value) that sells for $90 per share and pays an annual of $13. The rate of return for this stock is 15%.
2.) Common stock ($25 par value) recently paid a $2 dividend. The firms earnings per share have increased from $3 to $6 in 10 years and reflects the expected growth in dividends per share. The stock is selling for $20 and the rate of return for the stock is 20%.
Calculate the value of each security based on the rate of return.
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