An 8% preferred stock pays an annual dividend of $3.75.What is one share of this stock worth today?

Question

Quizplus · Accepted Answer

To calculate the value of an 8% preferred stock that pays an annual dividend of $3.75, we need to use the formula:

Stock Value = Dividend / Required Rate of Return

In this case, the Required Rate of Return is the same as the dividend yield, which is 8%. So we can calculate the stock value as:

Stock Value = $3.75 / 0.08 = $46.88

Therefore, one share of this stock is worth $46.88. The correct choice is D.

An 8% Preferred Stock Pays an Annual Dividend of $3