Question

The preferred stock of Denver Savings and Loan pays an annual dividend of $5.10. It has a required rate of return of 6 percent. Compute the price of the preferred stock___________.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

The price of the preferred stock should be $85.

Step-by-step explanation:

In order to find the price of a preferred stock we will use the formula of finding the price of perpetuity. Because the dividend is fixed and is the same every year we can use the formula

Price = Dividend/Required rate of return

= 5.10/0.06=85.