The required rate of return on TKF preferred has fallen from 5.75% at the time of issue to the present rate of 5%. The stock now sells for $115. What was the original price?
A) $75.61
B) $132.25
C) $114
D) $100

Question

Quizplus · Accepted Answer

The original price can be calculated using the formula for the price of a preferred stock: Price = Dividend / Required Rate of Return. Since the stock now sells for $115 at a 5% rate, the dividend is $115 * 5% = $5.75. At the original rate of 5.75%, the original price would be $5.75 / 5.75% = $100.

The Required Rate of Return on TKF Preferred Has Fallen