Problem:
Jones Design wishes to estimate the value of its out-standing preferred stock. The preferred issue has an $80 par value and has a dividend rate of 8 percent. Similar-risk preferred stocks are currently earning a 12% annual rate of return.
Required:
Question 1: What is the market value of the outstanding preferred stock?
Question 2: Explain why the current market value is different from the par value.
Note: Provide specific examples to support your answers.