Preferred stock valuation: 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 stock's current market price?

Question

Quizplus · Accepted Answer

The price of a perpetual preferred stock is calculated by dividing the annual dividend by the required rate of return. Here, the annual dividend is 5.5% of $100, which is $5.50. The required rate of return is 7.75%. So, the price is $5.50 / 0.0775 = $70.97.

Preferred Stock Valuation: Ajax Company Has Issued Perpetual Preferred Stock