Question

If a preferred stock from Pfizer Inc. (PFE) pays $4.00 in annual dividends, and the required return on the preferred stock is 8.00 percent, what's the value of the stock?
a. $50.00
b. $0.32
c. $32.00
d. $0.50

Answer 1

Answer:

Option a ($50.00) seems to be the right approach.

Explanation:

The given values are:

Annual dividend is,

= $4.00

Required return is,

= 8.00% i.e., 0.08

By using the formula, we get

⇒ $Value \ of \ the \ stock=\frac{Annula \ Dividend}{Required \ return}$

On putting the above given values, we get

⇒                              $=\frac{4.00}{0.08 }$

⇒                              $=50$ ($)