Question

What is the value of a preferred stock that pays a perpetual dividend of $150 at the end of each year when the interest rate is 7 percent

Answer 1

$2,143

Step-by-step explanation:

The computation of the value of the preferred stock is shown below:

Value of the preferred stock = Cash flows with respect to perpetual dividend ÷ the rate of interest

= $150 ÷ 0.07

= $2,143

Simply we divided the rate of the interest by the cash flows so that the accurate value of the preferred stock can be computed