Ajax Company has issued perpetual preferred stock 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 preferred stock's current market price? (Round off to the two decimal places.)
A) $12.90
B) $70.97
C) $53.27
D) $62.14

Question

Quizplus · Accepted Answer

The market price of a perpetual preferred stock can be calculated using the formula: Price = Dividend / Required Rate of Return. Here, the dividend is 5.5% of $100, which is $5.50. The required rate of return is 7.75%. Thus, the price = $5.50 / 0.0775 = $70.97.

Ajax Company Has Issued Perpetual Preferred Stock with a Par