Preferred Stock Valuation Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?

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Business

Doobie

14 December, 20:38

Preferred Stock Valuation Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?

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Mora · Answer 1

9.17%

Explanation:

Because this is perpetual preferred stock, there're no tenor fixed but last forever until the company closes / broken.

Thus the required rate of return is simply calculated as below:

Rate = dividend / stock price = $2.75 / $30 = 9.17%