A preferred stock will pay a dividend of $3.50 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 11% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

Question

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, $3.50 / 0.11 = $31.82.

A Preferred Stock Will Pay a Dividend of $3