The value of a preferred stock with a $5.55 dividend and a required rate of return of 10% is $55.50, calculated by dividing the dividend by the required rate of return.
The value of a preferred stock that pays a $5.55 dividend to an investor with a required rate of return of 10% is calculated using the dividend discount model formula for preferred stock, which is the dividend value divided by the required rate of return. In this case, it would be $5.55 / 0.10, which equals $55.50. Therefore, the correct answer to the question is option a) $55.50.
Investors expect to receive a rate of return in the form of dividends or capital gains when they invest in stocks. For preferred stocks, dividends are typically fixed and can be used to calculate the stock's value if the required rate of return is known. This method allows investors to understand what a future cash flow is worth in today's dollars, informing their investment decisions.