Question

An issue of preferred stock is paying an annual dividend of $1.50. The growth rate for the firm's common stock is 5%. What is the preferred stock price if the required rate of return is 7%

Answer 1

Answer:

P = $21.43

Explanation:

Price of the preferred stock is:

P = D / r = $1.5 / 0.07 = $21.43

P: Preferred stock price

r: required rate of return

D: Annual dividend

The growth rate for the common stock given is irrelevant