Question

A firm has an issue of preferred stock outstanding that has a stated annual dividend of $4. The required return on the preferred stock has been estimated to be 16%. The value of the preferred stock is ________. A. $64.B. $16.C. $25.D. $50.

Answer 1

$64

Step-by-step explanation:

A firm has an annual dividend of $4

The required return is 16%

Therefore the value of the preferred stock can be calculated as follows

= 16/100 × 4

= 0.16 × 4

= 0.64 ×100

= $64

Hence the value of the preferred stock is $64