Preferred Stock Valuation

B

The value of a preferred stock is the stated annual dividend divided by the required rate of return on preferred stock.

In this case, V = $8/.09 = $88.89

To calculate the value of a preferred stock, we can use the dividend discount model (DDM), which values the stock based on its expected future dividends. The formula for DDM is as follows:

Value of Preferred Stock = Dividend / Required Return

In this case, the dividend payout is given as $8 per year, and the required return is 9% (or 0.09 as a decimal). Plugging in these values into the formula, we can calculate the value of the preferred stock:

Value of Preferred Stock = $8 / 0.09

Value of Preferred Stock ≈ $88.89

Therefore, the correct answer is B. $88.89.