Question

What is the value of a preferred stock where the dividend rate is 14% on a $100 par value? Assume the discount rate for this stock is 12%?

Answer 1

Value of preferred stock will be $140

Step-by-step explanation:

We have given par value of preferred stock = $100

Dividend rate = 14 %

Discount rate on preferred stock = 12%

Preferred stock dividend
`=face\ value* dividend\ rate=100* 0.14=14`

We have to find the value of preferred stock

Value of preferred stock
`=(preferred\ stock\ dividend)/(discount\ rate)=(14)/(0.1)=140`

So value of preferred stock will be $140