North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $6 per share. With the passage of time, yields have soared from the original 6 percent to 14 percent (yield is the same as required rate of return).

A. What was the original issue price?

B. What is the current value of this preferred stock?

C. If the yield on the Standard & Poor's Preferred Stock Index declines, how will the price of the preferred stock be affected?

A. To calculate the original issue price of the preferred stock, we need to use the formula for calculating the price of a preferred stock:

Price of Preferred Stock = Dividend / Yield

In this case, the dividend is $6 per share and the yield is 6 percent. We convert the percentage to a decimal by dividing it by 100:

Yield = 6% / 100 = 0.06

Now, we can substitute the values into the formula:

Original Issue Price = $6 / 0.06 = $100

Therefore, the original issue price of the preferred stock was $100.

B. To calculate the current value of the preferred stock, we use the same formula, but with the updated yield of 14 percent:

Current Value of Preferred Stock = $6 / 0.14 = $42.86

Therefore, the current value of the preferred stock is $42.86.

C. If the yield on the Standard & Poor's Preferred Stock Index declines, it means that the required rate of return for preferred stocks decreases. As a result, the price of the preferred stock will increase. This is because investors are willing to pay a higher price for the same fixed dividend if the required rate of return is lower. Conversely, if the yield increases, the price of the preferred stock will decrease. The relationship between yield and price is inverse.