A preferred stock has a $100 par value and a dividend payout of $8 per year. What is the value of the preferred stock?
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A. B. C. D.Explanation
The value of a preferred stock is the stated annual dividend divided by the required rate of return on preferred stock.
The required rate of return in this case is not given.
To calculate the value of a preferred stock, we can use the dividend discount model (DDM), which values the stock based on the present value of its future dividends. The formula for calculating the value of a preferred stock is:
Value of preferred stock = Dividend / Required Rate of Return
Given that the preferred stock has a $100 par value and a dividend payout of $8 per year, we can use this information to calculate the value.
However, the question does not provide us with the required rate of return, which is essential to calculate the value. The required rate of return represents the minimum rate of return an investor expects to earn from an investment. Without this information, we cannot accurately calculate the value of the preferred stock.
Therefore, the correct answer is (A) not enough information to calculate it.