LTM,Inc.has an issue of preferred stock whose par value is $1,000.The preferred stock pays a 4.5% dividend.If investors require a 5.5% rate of return for these shares,what price should the preferred stock sell for?

Question

Quizplus · Accepted Answer

The price of the preferred stock can be calculated using the dividend discount model for preferred stocks, which is Dividend / Required Rate of Return. Here, the dividend is 4.5% of the $1,000 par value, which is $45. The required rate of return is 5.5%. So, the price = $45 / 0.055 = $818.18.

LTM,IncHas an Issue of Preferred Stock Whose Par Value Is