posted by Barney on .
Preferred stock question. I need help with part b.
A share of preferred stock of MXT Ltd. is expected to pay $1.5 per quarter into indefinite future. The current annual expected rate of return (k) is 12%. Suppose that an investor buys 10 shares today and holds them for two years. Find his/her cash flows on a timeline in each of the following situations:
a. Interest Rates don't change
b. The required annual expected ROR on the preferred stock becomes 8% bu the end of year 2.