Baxter Corporation’s preferred stock is selling for $85 per share in the market. This preferred stock has a par value of $75 and a dividend rate of 10 percent.
a) What is the current yield on the stock?
b) If an investor has a required rate of return of 16 percent, what is the value of the stock for that investor?
c) Should the investor acquire the stock? Explain.
d) Explain why preferred stock is referred to as a hybrid security.