Question

What is the value of a preferred stock where the dividend rate is 14% on a $100 par value? Assume the discount rate for this stock is 12%?

Answer 1

Answer:

Value of preferred stock will be $140

Explanation:

We have given par value of preferred stock = $100

Dividend rate = 14 %

Discount rate on preferred stock = 12%

Preferred stock dividend $=face\ value\times dividend\ rate=100\times 0.14=14$

We have to find the value of preferred stock

Value of preferred stock $=\frac{preferred\ stock\ dividend}{discount\ rate}=\frac{14}{0.1}=140$

So value of preferred stock will be $140