Question

If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock? $0.21 $0.43 $21.00 $42.86

Answer 1

Answer:

d). Value of the preferred stock= $3/0.07= $42.86

Explanation:

A preferred stock represents a portion of ownership or an organisation. Although there are two types of stock which are ordinary/common stock and preferred stock, the characteristics of preferred stock is that its holders are entitled to dividend claims before the holders of the common stockholders.

The Value of Pfizer Inc.'s preferred stock is as follows:

Value of Preference Stock= The Annual dividend the required rate of return on the stock

Annual dividend = $3.00

Rate of return = 7%

Value of the preferred stock= $3/0.07= $42.86