A preferred stock pays an annual dividend of $5.20. What is one share of this stock worth today if the rate of return is 10.44 percent?

Question

Quizplus · Accepted Answer

To determine the current value of the preferred stock, we can use the dividend discount model:

PV = D / r

where PV is the present value, D is the annual dividend, and r is the required rate of return.

Plugging in the given values, we get:

PV = 5.20 / 0.1044 = $49.81

Therefore, one share of this stock is worth $49.81 today. The correct answer is (C).

A Preferred Stock Pays an Annual Dividend of $5