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April 18, 2014

April 18, 2014

Posted by **Yinka** on Thursday, November 15, 2012 at 10:20am.

- STOCKS & BONDS -
**NAINIAVI@GMAIL**, Saturday, November 17, 2012 at 6:55amPar value of preferred stock = $100

Annual dividend DP = 8% of $100 = $8

Required rate of return KP = 6%

Market price of preferred stock= DP / KP

= $8 / 0.06

= $133.33

Required rate of return KP = 10%

Market price of preferred stock= $8 / 0.10

= $80

There is inverse relationship between required rate of return and price, so when the required rate increased from 6% to 10%, price of the preferred stock decreased from $133 to $80.

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