A preferred stock pays an annual dividend of $3.20.What is one share of this stock worth today if the rate of return is 11.75 percent?

Question

Quizplus · Accepted Answer

We can use the formula for the present value of a perpetuity: PV = D/r, where PV is the present value, D is the annual dividend, and r is the rate of return. Plugging in the given values, we get PV = 3.20/0.1175 = $27.23. Therefore, one share of this stock is worth $27.23 today.

A Preferred Stock Pays an Annual Dividend of $3