Final answer:
The value of a preferred stock that pays a $3.84 annual dividend at a 9.5% return is $40.42. This is calculated using the dividend yield formula, which divides the annual dividend by the required rate of return.
Step-by-step explanation:
To calculate the value of a preferred stock at a given return, we use the formula of dividend yield, which is the annual dividend divided by the required rate of return. In this case, the student is asked about the value of a preferred stock with an annual dividend of $3.84 and a required rate of return of 9.5%.
The formula for calculating the value of a stock based on dividend and required rate of return is:
Value of Preferred Stock
= Annual Dividend / Required Rate of Return
Plugging in the given numbers:
Value of Preferred Stock
= $3.84 / 0.095
Thus, the value of the stock is:
Value of Preferred Stock
= $40.42
The calculated value of $40.42 represents what an investor would be willing to pay for this preferred stock to achieve a 9.5% return.