What is the value of a preferred stock with a par value of $150, an annual dividend equal to 15% of par value, and a required rate of return of 12%?
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A. B. C. D. E.Explanation
The value of a preferred stock is the present value of its dividends, which is equal to the annual dividend divided by the required rate of return. In this question, the annual dividend is equal to 150 x .15 = $22.5, and the preferred stock is worth $22.5/0.12 = $187.50