Question

The preferred stock of a company pays a $2.75 quarterly dividends. If the preferred stockholders' required return is 7.25% for these shares, what price should the preferred stock sell for?

82.35

151.72

92.31

114.29

167.74​

Answer 1

$151.72

Step-by-step explanation:

Quarterly dividends of preferred stock = $2.75

Annual dividend of preferred stock = 4 * Quarterly dividend

Annual dividend of preferred stock = 4 * $2.75

Annual dividend of preferred stock = $11

Required return = 7.25% = 0.0725

Return = Dividend / Current price

0.0725 = $11 / Current price

Current price = $11 / 0.0725

Current price = 151.724138

Current price = $151.72

So, the preferred stock should sell for $151.72.