Question

The Meredith Company issued $100 par value preferred shares 10 years ago. The shares provided an 7 percent yield at the time of issue. Each preferred share is now selling for $80. What is the current yield or cost of preferred stock? (Disregard flotation costs.) (Round the final answer to 2 decimal places.) Yield %

Answer 1

The current yield of the preferred stock issued by the Meredith Company, which now sells for $80 per share and originally had a $100 par value with a 7% yield, is 8.75%.

Step-by-step explanation:

The question asks us to determine the current yield or cost of preferred stock issued by the Meredith Company. At the time of issue, the preferred shares had a $100 par value and provided a 7% yield, meaning each share paid $7 annual dividend. With the current market price of these preferred shares being $80, the current yield can be calculated using the formula: Current Yield = Annual Dividend / Current Market Price per Share. Therefore, the current yield is ($7 / $80) * 100, which is 8.75%. This percentage represents the annual return on investment if the shares are purchased for $80.