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18 February, 00:46

An issue of preferred stock is paying an annual dividend of $1.50. The growth rate for the firm's common stock is 5%. What is the preferred stock price if the required rate of return is 7%

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  1. 18 February, 04:29
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    P = $21.43

    Explanation:

    Price of the preferred stock is:

    P = D / r = $1.5 / 0.07 = $21.43

    P: Preferred stock price

    r: required rate of return

    D: Annual dividend

    The growth rate for the common stock given is irrelevant
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