(Preferred stock valuation) What is the value of a preferred stock when the dividend rate is...

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(Preferred stock valuation) What is the value of a preferred stock when the dividend rate is...

(Preferred stock valuation) What is the value of a preferred stock when the dividend rate is 14 percent on a $ 125 par value? The appropriate discount rate for a stock of this risk level is 9 percent.

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Answer 1

Answer #1

Dividend of Preferred stock = Par value*dividend rate = $125*14% = $17.5

Cost of Preferred stock = Preferred stock dividend/value of preferred stock

value of preferred stock = Preferred stock dividend/Cost of Preferred stock

Cost of preferred stock is the appropriate discount rate for the stock which is 9% in this case.

value of preferred stock = $17.5/0.09 = $194.44

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Answer 2

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