Problem:
Ezzell Corporation issued preferred stock with a stated dividend of 10 percent of par. Preferred stock of this type currently yields 8 percent, and the par value is $100. Assume dividends are paid annually.
Requirement:
Question 1: What is the value of Ezzell's preferred stock?
Question 2: Suppose interest rate levels rise to the point where the preferred stock now yields 12 percent. What would be the value of Ezzell's preferred stock?
Note: Be sure to show how you arrived at your answer.