Problem:
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 11% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually.
Required:
Question 1: What is the value of Rolen's preferred stock?
Question 2: Suppose interest rate levels have risen to the point where the preferred stock now yields 13%. What would be the new value of Rolen's preferred stock?
Please provide step by step solution.