Final answer:
The currently expected rate of return on preferred stock is calculated with Present Discounted Value (PDV), where future dividend payments are discounted to their present value using an interest rate. This total PDV is then divided by the number of shares to find the price per share.
Step-by-step explanation:
The currently expected rate of return on preferred stock (PSER) is determined through calculations involving the Present Discounted Value (PDV). To calculate the PSER, future dividend payments are projected and then discounted back to their present value using an appropriate interest rate. For instance, if Babble, Inc. expects to pay dividends of $15 million immediately, $20 million one year from now, and $25 million two years from now, an investor will discount these amounts back to their present value, considering a chosen interest rate (say 15%). Separate PDV calculations are done for each time period to account for the time value of money.
After obtaining the PDV for each expected payment, the total PDV is calculated by summing these values. This total PDV is then divided by the number of shares to determine the price per share. For example, if the total PDV for all projected dividends of Babble, Inc. is $51.3 million and there are 200 shares, dividing $51.3 million by 200 gives a price per share of about $256,500.