Question

What is the value of a preferred stock when the dividend rate is

Answer 1

Answer:

The value of the preferred stock is  136.36.

Step-by-step explanation:

Consider the provided information.

The dividend rate is 15% or 0.15.

Per value of a preferred stock or face value is $100.

The appropriate discount rate for a stock of this risk level is 11% or 0.11.

Preferred Stock dividend = Face value × Dividend rate

Substitute the respective values in the above formula.

Preferred Stock Dividend = Face value × Dividend rate

                         = 100 × 0.15

                         = 15 per share

Value of preferred stock = $\frac{\text{Preferred Stock Dividend }}{\text{Discount rate}}$

Value of preferred stock = $\frac{15}{0.11}$

                                         = $136.36$

Hence, the value of the preferred stock is  136.36.