Question

Troll Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $9.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell? * a) $104.27 b) $106.95 c) $109.69 d) $146.15 e) None of the above

Answer 1

d) $146.15

Explanation:

From the above Question, we are given the following values:

The annual dividend per share of a perpetual preferred stock = $9.50

The required return rate on this preferred stock = 6.5% = 0.06

The selling price of the stock = ??

The formula to calculate the Selling price of the stock =

Annual dividend per share / Required return rate

= $9.5/ 0.065

= $146.15384615

Approximately $146.15

Therefore, the price at which the stock should sell is $146.15.