Question

Marston Manufacturing Company pays an annual dividend rate of 10.00% on its preferred stock that currently returns 13.40% and has a par value of $100.00 per share. What is the value of Marston's preferred stock?

Answer 1

The value of Marston's preferred stock is approximately $74.63 per share.

Step-by-step explanation:

To calculate the value of Marston's preferred stock, we need to divide the annual dividend rate by the current return rate. In this case, the annual dividend rate is 10.00% (0.1) and the current return rate is 13.40% (0.134). Dividing 0.1 by 0.134 gives us a value of approximately 0.7463.

Next, we need to multiply this value by the par value of the preferred stock, which is $100.00 per share. Multiplying 0.7463 by $100.00 gives us a value of approximately $74.63 per share. Therefore, the value of Marston's preferred stock is approximately $74.63 per share.

Answer 2

The price of the stock is $75 rounded to the nearest dollar

Step-by-step explanation:

The question here demands to know the value of Marston preferred stock. This can be evaluated mathematically as follows:

In the question, we identify the following values:

The annual dividend rate on preferred stock = 10%

Return on preferred stock = 13.4%

The Par value = $100 per share.

Mathematically:

Return on preferred stock = Annual dividend rate on preferred stock divided by Price of stock

Hence, price of stock = 10% of $100/0.1340 = 10/0.1340 = $74.63

This is $75 rounded to the nearest dollar