You want to earn a 12% rate of return. Panco, Inc. preferred stock pays a $4.50 annual dividend. What is the maximum price you are willing to pay for one share of this stock?

Question

Quizplus · Accepted Answer

To find the maximum price you're willing to pay for a share of preferred stock to earn a 12% rate of return, you use the formula for valuing preferred stock: Price = Dividend / Required Rate of Return. Plugging in the values gives: Price = $4.50 / 0.12 = $37.50.

You Want to Earn a 12% Rate of Return