Question

A preferred stock that pays an annual dividend of $10, has a par value of $100, and has a required return of 5% will be valued at $200. Group of answer choices True False

Answer 1

The answer is true

Step-by-step explanation:

Vo = D/Kp

Vo is the value of preferred stock/shares

D is the dividend

Kp is the cost of preferred stock/share

To confirm whether the value of stock is actually $200, we perform the following:

D = $10

Kp = 5% or 0.05

10/0.05

=$200.

The answer is true