Response to the following problem:
An adjustable-rate preference share is currently selling at a dividend yield of 9%. Assume that the dividend rate on the share is adjusted once a year and that it is currently paying an annual dividend of $5.40 a share. Because of major changes that have occurred in the market, it's anticipated that annual dividends will drop to $4.50 a share on the next dividend adjustment date, which is just around the corner.
What will the new dividend yield on this issue be if its market price does not change?
What will the new market price on the issue be if the share's dividend yield holds at 9%?
What will it be if the yield drops to 7%?