The National Bank of Columbia has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.40 on this stock. What is the current price of this preferred stock given a required rate of return of 8.5 percent? (Round off to two decimal places.)

Question

Quizplus · Accepted Answer

The current price of a perpetual preferred stock can be calculated using the formula: Price = Dividend per period / Required rate of return. Here, the quarterly dividend is $1.40, and the annual dividend is $1.40 * 4 = $5.60. The required rate of return is 8.5%, or 0.085 in decimal form. Thus, Price = $5.60 / 0.085 = $65.88.

The National Bank of Columbia Has Issued Perpetual Preferred Stock