Determine the value of a LASKA 6.25% cumulative preferred stock, series D, par value $75 to an investor who requires a 9.5% rate of return on a security with this risk.
A) $65.79
B) $49.37
C) $75.00
D) $114.00

Question

Quizplus · Accepted Answer

To calculate the value of the preferred stock, we need to use the formula: Value of preferred stock = Annual dividend payment / Required rate of return.

For this example, the annual dividend payment is 6.25% x $75 = $4.69.

Therefore, the value of the preferred stock = $4.69 / 9.5% = $49.37.

Option B is the only one that matches this value.

Determine the Value of a LASKA 6