MATH SOLVE

3 months ago

Q:
# What is the value of a preferred stock when the dividend rate is15percent on a$ 100par value? The appropriate discount rate for a stock of this risk level is11percent.The value of the preferred stock is$nothing .(Round to the nearest cent.)

Accepted Solution

A:

Answer:The value of the preferred stock is 136.36.Step-by-step explanation:Consider the provided information.The dividend rate is 15% or 0.15.Per value of a preferred stock or face value is $100.The appropriate discount rate for a stock of this risk level is 11% or 0.11.Preferred Stock dividend = Face value × Dividend rateSubstitute the respective values in the above formula.Preferred Stock Dividend = Face value × Dividend rate = 100 × 0.15 = 15 per shareValue of preferred stock = [tex] \frac{\text{Preferred Stock Dividend }}{\text{Discount rate}}[/tex]Value of preferred stock = [tex] \frac{15}{0.11}[/tex] = [tex] 136.36[/tex]Hence, the value of the preferred stock is 136.36.