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29 April, 21:52

The Jones Company plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20%, what should be the stock's market value?

a. $ 50

b. $150

c. $ 25

d. $ 10

e. $100

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  1. 29 April, 22:26
    0
    c) $25

    Explanation:

    The value of a preferred stock is the present value of the constant dividend payable for the foreseeable future discounted at the required rate of return

    Price = Constant dividend / required return

    The constant dividend = Dividend rate * par value

    Dividend as be given as $5 per share

    requited return - 20%

    So the price of the stock would be

    Price = 5/0.2

    = $25
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