Question

Earley Corporation issued perpetual preferred stock with an 8% annual dividend. The stock currently yields 6%, and its par value is $100. Round your answers to the nearest cent. What is the stock's value

Answer 1

Value of stock = $133.33

Step-by-step explanation:

The value of a preferred stock is the present value of the constant dividend payable for the foreseeable future discounted at the required rate of return

Price = Constant dividend/ required return

The constant dividend = Dividend rate × par value= 8%*100= 8

Requited return - 6%

So the price of the stock would be

Price = 8/0.06=133.33

Value of stock = $133.33