A preferred stock that pays an annual dividend of $10,has a par value of $100,and has a required return of 5% will be valued at $200.

Question

Quizplus · Accepted Answer

The value of a preferred stock is calculated as the present value of its future dividends. In this case, the annual dividend is $10, the required return is 5%, and the par value is $100. Using the formula for the present value of a perpetuity, we can calculate the value of the preferred stock as follows:Value = Dividend / Required ReturnValue = $10 / 0.05Value = $200Therefore, the value of the preferred stock is $200.

A Preferred Stock That Pays an Annual Dividend of $10,has