Question

A company’s 1000 par preferred stock pays a Rs 50 annual dividend and has a required rate of return of 8%. Calculate the value of the preferred stock

A 500 Correct Answer Incorrect Answer
B 625 Correct Answer Incorrect Answer
C 1000 Correct Answer Incorrect Answer
D 1250 Correct Answer Incorrect Answer
E 950 Correct Answer Incorrect Answer

Solution

Cost of preferred stock = dividend / required rate of return = 50/0.08 =625

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