Problem:
Mia's doll company has an outstanding preferred issue of stock with a par value of $100 and an annual dividend of 10 percent (of par). Similar risk preferred stocks are yielding an 11.5 percent annual rate of return.
Required:
Question 1: What is the current value of the outstanding preferred stock?
Question 2: What will happen to prices as the risk free rate increases? Explain?
Note: Please show how you came up with the solution.