A preferred stock will pay a dividend of $6.00 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow.You require a return of 10% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

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Quizplus · Accepted Answer

The intrinsic value of a preferred stock using the constant growth Dividend Discount Model (DDM) when dividends do not grow is calculated as Dividend per share / Required rate of return. Therefore, the intrinsic value = $6.00 / 0.10 = $60.00.

A Preferred Stock Will Pay a Dividend of $6