(Preferred stock valuation) Pioneer's preferred stock is selling for $26 in the market and pays a...

Question

Question

(Preferred stock valuation) Pioneers preferred stock is selling for $26 in the market and pays a $3.10 annual dividend. a. I

Answer 1

Answer #1

a) Value of preferred stock = Annual dividend/Required rate

Value of preferred stock = $3.10/13%

Value of preferred stock = $23.8

b) Given the value of stock to you is lower than what it is being selling for in market, you should sell the stock.

The investor should not acquire the stock because it is currently overvaluedin the market

Answer 2

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