Question

Preferred Stock Valuation Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?

Answer 1

Answer:

9.17%

Explanation:

Because this is perpetual preferred stock, there’re no tenor fixed but last forever until the company closes/ broken.

Thus the required rate of return is simply calculated as below:

Rate = dividend/ stock price = $2.75/ $30 = 9.17%