Murky Pharmaceuticals has issued preference shares with a par value of $100 and a 5% dividend.The investors' required yield is 10%.What is the value of a share of Murky preferred?

Question

Quizplus · Accepted Answer

The value of a preferred share is calculated by dividing the annual dividend by the required yield. Here, the annual dividend is 5% of $100, which is $5. The required yield is 10%, so the value of the share is $5 / 0.10 = $50.

Murky Pharmaceuticals Has Issued Preference Shares with a Par Value