Question

Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $8.10 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?

Select the correct answer.

a. $123.14

b. $124.25

c. $123.51

d. $123.88

e. $124.62

Answer 1

Annual dividend = $8.10

Required return on preferred stock = 6.5%

Preferred stock price = annual dividend / Required return

Preferred stock price = $8.10 / 0.065

Preferred stock price = $124.62

Option 'E' is correct

Preferred stock should sell at $124.62