Preferred stock valuation: 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?

Question

Quizplus · Accepted Answer

The price of a perpetual preferred stock is calculated using the formula: Price = Dividend / Required Rate of Return. The annual dividend is $1.40 * 4 = $5.60. Thus, Price = $5.60 / 0.085 = $65.88.

Preferred Stock Valuation: the National Bank of Columbia Has Issued