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.

Question

Quizplus · Accepted Answer

The intrinsic value of a preferred stock that pays a constant dividend can be calculated using the formula $ \text{Price} = \frac{D}{r} $, where $D$ is the dividend and $r$ is the required rate of return. Plugging in the values, $ \text{Price} = \frac{6.00}{0.10} = 60.00 $.

A Preferred Stock Will Pay a Dividend of $6