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Revisiting cumulative preferred stock valuation

Realdon, Marco (2006) Revisiting cumulative preferred stock valuation Finance Research Letters, 3, (1), pp. 2-13. (doi:10.1016/j.frl.2006.01.002).

Record type: Article

Abstract

This paper revisits the valuation of cumulative preferred stock, whose fair price is shown to critically depend on dividend arrears and the firm's earnings. Such fair price is an almost everywhere concave function of the firm's assets value and it tends to increase in the rate at which the firm generates earnings. When dividends are in arrears, the preferred stock call price should increase accordingly. If not, cumulative preferred stock becomes similar to the non-cumulative one. The value of a low credit quality preferred stock may well increase with interest rates. A finite difference algorithm is presented to value preferred stock as a function of the firm's asset, stochastic interest rates and dividend arrears

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More information

Published date: March 2006
Keywords: cumulative preferred stock, dividend arrears, call option, default, structural model

Identifiers

Local EPrints ID: 47186
URI: http://eprints.soton.ac.uk/id/eprint/47186
ISSN: 1544-6123
PURE UUID: 62b966d4-d2d6-473c-b3f2-a061df87eca1

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Date deposited: 03 Aug 2007
Last modified: 17 Jul 2017 15:04

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Contributors

Author: Marco Realdon

University divisions

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