Question

An issue of preferred stock is paying an annual dividend of $1.50. The growth rate for the firm's common stock is 5%. What is the preferred stock price if the required rate of return is 7%?

a) $21.43
b) None of these options
c) $22.50
d) $30.00

Answer 1

a) $21.43

Step-by-step explanation:

Preferred stock price = Annual dividend / Required rate

Preferred stock price = 1.50/7%

Preferred stock price = 1.50/0.07

Preferred stock price = 21.42857142857143

Preferred stock price = $21.43