Montreal Financing has preferred shares with a stated value of $20 outstanding.These shares pay $1.60 in dividends annually.
a)What is the market price of these shares if the current market yield is 11%?
b)What is the market price of these shares if the current market yield is 11% and the issue is retractable in five years at the stated value?
c)What is the value of this retractable feature? Why does it have value?
d)What is the market price of these shares if the issue is immediately redeemable and retractable at stated value?

Question

Quizplus · Accepted Answer

The Answer of Montreal Financing has preferred shares with a stated value of $20 outstanding.These shares pay $1.60 in dividends annually.
a)What is the market price of these shares if the current market yield is 11%?
b)What is the market price of these shares if the current market yield is 11% and the issue is retractable in five years at the stated value?
c)What is the value of this retractable feature? Why does it have value?
d)What is the market price of these shares if the issue is immediately redeemable and retractable at stated value?

Montreal Financing Has Preferred Shares with a Stated Value of $20