A preferred stock will pay a dividend of $2.75 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 10% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.
A)$0.275
B)$27.50
C)$31.82
D)$56.25
E)none of the above

Question

Quizplus · Accepted Answer

The intrinsic value of a preferred stock with no growth in dividends is calculated using the formula: Dividend / Required Return. Here, it is $2.75 / 0.10 = $27.50.

A Preferred Stock Will Pay a Dividend of $2