Montreal Financing has preferred shares with a par value of $20 outstanding.These shares pay $1.60 in dividends annually.
A) What will be the market price of these shares if the current market yield is 11 percent?
B) What will be the market price of these shares if the current market yield is 11 percent and the issue is retractable in five years at the par value?
C) What is the value of this retractable feature? Why does it have value?
D) What will be the market price of these shares if the issue is immediately redeemable and retractable at par?

Question

Quizplus · Accepted Answer

The Answer of Montreal Financing has preferred shares with a par value of $20 outstanding.These shares pay $1.60 in dividends annually.
A) What will be the market price of these shares if the current market yield is 11 percent?
B) What will be the market price of these shares if the current market yield is 11 percent and the issue is retractable in five years at the par value?
C) What is the value of this retractable feature? Why does it have value?
D) What will be the market price of these shares if the issue is immediately redeemable and retractable at par?

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