How much would you be willing to pay for a preferred stock that pays $6.50 to perpetuity if the appropriate discount rate is 9%?
A)$65.00
B)$72.22
C)$81.25
D)$722.20

Question

Quizplus · Accepted Answer

The price of a perpetual preferred stock is equal to its annual dividend divided by the required rate of return. Thus, the price is $6.50/0.09 = $72.22. Therefore, the best choice is B.

How Much Would You Be Willing to Pay for a Preferred