Question: Barnes Air Conditioning, Inc., has two classes of preferred stock: floating rate preferred stock and straight (normal) preferred stock. Both issues have a par value of $100. The floating rate preferred stock pays an annual dividend yield of 6 percent, and the straight preferred stock pays 7 percent. Since the issuance of the two securities, interest rates have gone up by 2 percent for each issue. Both securities will pay their year-end dividend today.
a. What is the price of the floating rate preferred stock likely to be?
b. What is the price of the straight preferred stock likely to be?