Preferred Stock Value Calculator

Preferred Stock Value Calculation

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Question

A preferred stock has a dividend payout of $5 every 6 months. Your required rate of return is 20% annually. What is the value of the preferred stock?

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A. B. C. D.

D

First recognize that the appropriate discount rate to use is half of 20% or 10% because the dividend is paid out twice a year. Next calculate the value of the stock as Dividend/Required rate or $5/0.1 = $50.

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