Sacramento Light & Power issued preferred stock in 1998 that had a par value of $85. The preferred stock pays a dividend of 5.75%. Investors require a rate of return of 6.50% today on this stock. What is the value of the preferred stock today? Round to the nearest $1.

Question

Quizplus · Accepted Answer

To calculate the value of the preferred stock, we need to use the formula V = D/R, where V is the value of the stock, D is the dividend and R is the required rate of return. In this case, D = $85 x 5.75% = $4.89. So, V = $4.89/6.50% = $75.23. Rounded to the nearest dollar, the value of the preferred stock today is $75, which is option C.

Sacramento Light & Power Issued Preferred Stock in 1998 That