A company has issued preferred stock with an $8 annual dividend that
will be paid in perpetuity.
1)  If the discount rate is 12 percent, at what price should the preferred sell?  
2) At what price should the stock sell 1 year from now? 
3) What is the dividend yield?  The Capital gains yield?  The expected
rate of return of the stock?

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Clarification of Question by zimmy-ga on 05 Apr 2005 12:13 PDT

Can anyone answer this today?  I need it by tonight (4/5/2005).
Thanks.  I've upped the price.

1) P0 =D1/r = $8/0.12 = $66.67

2) Unless the discount rate or expected cash flows change, the price
will never change.

3) The dividend yield is 12%.  The capital gains yield is 0% (there
will be no capital gains income from the preferred stock).  Therefore,
the rate of return will be 12%.

Source: "Stock Valuation" by Vigdis Boasson, School of Management,
SUNY at Buffalo, http://www.mgt.buffalo.edu/courses/mgf/301/g/chpt8/chpt8.PPT

Your tips are appreciated.

Sincerely,

Wonko

Thank you!