Morris, Inc. has some 8% preferred stock outstanding. The par value of the preferred stock is $100. How much are you willing to pay for one share of Morris preferred stock if you require a 7% rate of return?

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Quizplus · Accepted Answer

The value of a preferred stock can be calculated using the formula: Price = Dividend / Required Rate of Return. Here, the dividend is 8% of the $100 par value, which is $8. If you require a 7% rate of return, the calculation is $8 / 0.07 = $114.29.