Question

The value of a preferred stock that pays a dividend of $7.50 per share when the market's required yield on similar shares is 11 percent is $ per share $68.18. What is the value of the preferred stock?

Answer 1

The value of the preferred stock is calculated by dividing the annual dividend by the market's required yield, resulting in a value of approximately $68.18 per share.

Step-by-step explanation:

The value of preferred stock is calculated using the formula for present discounted value (PDV). Given that the stock pays a dividend of $7.50 per share and the market's required yield (or interest rate) on similar shares is 11 percent, the value of the stock can be found by dividing the annual dividend by the required yield. Therefore, the calculation becomes $7.50 / 0.11, which equals approximately $68.18 per share.