Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell

The answer is $115.38

Explanation:

Solution

Given that

The annual dividend on preferred stock = $7.50

Required return on preferred stock + = 6.5%

The next step is to find at what price should the preferred stock sell which is given as follows:

The rice of preferred stock = 7.50/6.5%

= $115.38

$115.38 is the price at which the stock preferred was sold.