What is the value of an MDI $2.67 perpetual preferred stock to an investor who requires a 7% annual rate of return? Assume the par value is $60.00.
A) $85.71
B) $38.14
C) $59.33
D) $60.00

Question

Quizplus · Accepted Answer

To calculate the value of the preferred stock, we need to divide the annual dividend by the required rate of return. The annual dividend for MDI $2.67 perpetual preferred stock is $2.67 x $60.00 = $160.20. Dividing by the required rate of return of 7% gives us $2,288.57. However, since the par value is only $60.00, we need to divide by 60 to get the value per share which is $38.14. Therefore, the value of the preferred stock is $38.14.

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