Madison City Bank’s preferred stock has a par value of $30. What is its present value...
Madison City Bank’s preferred stock has a par value of $30. What is its present value to you if it has a 7% dividend rate and your required rate of return on similar securities is 6.50%?
Homework Answers
Given,
Par value of preferred stock= $30
Dividend rate= 7%
Required rate of return= 6.50%
Therefore,
Dividend= $30*7%= $2.1
Value of preferred stock= D/i
where,
D= Annual dividend per share
i= Required rate of return
Value of preferred stock= $2.1/0.065
= $32.31
* rounded off to 2 decimal places.
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