Preferred stock valuation: The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent?

Question

Quizplus · Accepted Answer

The price of preferred stock is calculated as the dividend divided by the required rate of return. The annual dividend is $2.60 * 4 = $10.40. The price is $10.40 / 0.125 = $83.20.

Preferred Stock Valuation: the Columbia Consumer Products Co