Question

What is the value of a preferred stock when the dividend rate is

15

percent on a

$ 100

par​ value? The appropriate discount rate for a stock of this risk level is

11

percent.

The value of the preferred stock is

​$nothing .

​(Round to the nearest​ cent.)

Answer 1

The value of the preferred stock is 136.36.

Explanation:

Consider the provided information.

The dividend rate is 15% or 0.15.

Per value of a preferred stock or face value is $100.

The appropriate discount rate for a stock of this risk level is 11% or 0.11.

Preferred Stock dividend = Face value × Dividend rate

Substitute the respective values in the above formula.

Preferred Stock Dividend = Face value × Dividend rate

= 100 × 0.15

= 15 per share

Value of preferred stock =
`\frac{\text{Preferred Stock Dividend }}{\text{Discount rate}}`

Value of preferred stock =
`(15)/(0.11)`

=
`136.36`

Hence, the value of the preferred stock is 136.36.