Preference share valuation: Ajax Company has issued perpetual preference shares with a par of $100 and a dividend of 5.5 percent. If the required rate of return is 7.75 percent, what is the share's current market price?
A) $12.90
B) $70.97
C) $53.27
D) $62.14

Question

Quizplus · Accepted Answer

The market price of a perpetual preference share is calculated by dividing the annual dividend by the required rate of return. Here, the annual dividend is $5.50 (5.5% of $100), and the required rate of return is 7.75%. Thus, the market price is $5.50 / 0.0775 = $70.97.

Preference Share Valuation: Ajax Company Has Issued Perpetual Preference Shares