Gap Inc.has outstanding nonconvertible preferred stock (cumulative)that pays a quarterly dividend of $1.25.If your required rate of return is 9.5%,what should you be willing to pay for 1000 shares of the firm?

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Quizplus · Accepted Answer

The price of preferred stock is calculated using the formula: Price = Dividend / Required Rate of Return. The annual dividend is $1.25 * 4 = $5. The required rate of return is 9.5% or 0.095. Therefore, the price per share is $5 / 0.095 = $52.63. For 1000 shares, it is $52,631.58.

Gap IncHas Outstanding Nonconvertible Preferred Stock (Cumulative)that Pays a Quarterly Dividend