Question

​(Preferred stockholder expected return​) You own 150 shares of Dalton Resources preferred​ stock, which currently sells for $47.35 per share and pays annual dividends of $4.75 per share.

a. What is your expected​ return? 10.03 %

b. If you require a return of 7 ​percent, given the current​ price, should you sell or buy more​ stock?

If you require a return of ​percent, the value of the stock for you is ​$ 67.86. ​(round to the nearest​ cent.)

Because the expected rate of return is... ▼ less than OR greater than ...your required rate of return or the intrinsic​ value, or because the current market price is... ▼ greater than OR less than ​...., the Dalton Resources preferred stock is ....▼ overvalued OR undervalued ....and you should ...▼ sell OR buy ...the stock. 

Answer 1

Solution a
	Annual dividend	$     4.75
	Share price	$   47.35
	Expected return=	4.75/47.35
	Expected return=	10.03%
Solution b
	Annual dividend	$     4.75
	Expected return=	7.00%
	Expected share price	4.75/7%
	Expected share price	$   67.86
	Since market price is $ 47.35 while expected share price is $ 67.86 which denotes that
	the share is undervalued in market so you should buy more of such stock.