Kwak Motors Inc. pays quarterly dividends of $2.00 dividend and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9.5% on your investment?

Question

Quizplus · Accepted Answer

The price of a preferred stock can be calculated using the formula: Price = Dividend / Required Rate of Return. Here, the annual dividend is $2.00 * 4 = $8.00. The required annual return is 9.5% or 0.095. Therefore, Price = $8.00 / 0.095 = $84.21.