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5 April, 11:20

Preferred Stock Valuation Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?

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  1. 5 April, 13:26
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    9.17%

    Explanation:

    Because this is perpetual preferred stock, there're no tenor fixed but last forever until the company closes / broken.

    Thus the required rate of return is simply calculated as below:

    Rate = dividend / stock price = $2.75 / $30 = 9.17%
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