CMT,Inc.has an issue of preferred stock whose par value is $500.The preferred stock pays a 4.5% dividend.If investors require a 5.5% rate of return for these shares,what price should the preferred stock sell for?

Question

Quizplus · Accepted Answer

The price of preferred stock is calculated by dividing the annual dividend by the required rate of return. The annual dividend is 4.5% of $500, which is $22.50. Dividing $22.50 by 5.5% (0.055) gives a price of $409.09.

CMT,IncHas an Issue of Preferred Stock Whose Par Value Is