The Sentinel Corporation has an issue of preferred stock that pays a dividend of $5.00 a share. If the appropriate cost of capital is 12%, what would you expect the market price of this stock
To be? Round you answer to the nearest cent.

Question

Quizplus · Accepted Answer

The market price of preferred stock can be calculated using the formula:
Market price of preferred stock = Dividend / Required rate of return
= $5 / 0.12
= $41.67
Therefore, the expected market price of the stock is $41.67, which corresponds to choice (B). The price of the preferred stock is calculated using the formula: 
Price of preferred stock = Dividend / Required Rate of Return
Price of preferred stock = $5 / 0.12
Price of preferred stock = $41.67 (rounded to the nearest cent)

The Sentinel Corporation Has an Issue of Preferred Stock That