Response to the following problem:
The Bloomington Flower Corporation is evaluating its cost of fixedrate perpetual preferred stock. Bloomington's management believes that it can issue new preferred stock at yields close that of its outstanding preferred stock issues. There are three outstanding preferred stock issues, which we will identify as A, B, and C. The following information has been gathered on these issues:
|
Issue
|
Dividend per Share
|
Current Market Price per Share
|
|
A
|
$3.00
|
$35 1/4
|
|
B
|
$2.50
|
$29 1/2
|
|
C
|
$4.50
|
$52 7/8
|
Assume, for simplicity, that dividends are paid at the end of each year.
a. What is the current yield on each of these preferred stock issues?
b. What would you recommend as the expected yield on preferred stock?