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PREFERRED STOCK VALUATION Farley Inc. has perpetual preferred stock outstanding that sells for $46.00 a share...

PREFERRED STOCK VALUATION

Farley Inc. has perpetual preferred stock outstanding that sells for $46.00 a share and pays a dividend of $4.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places.

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Answer #1

Required return is the division of dividend per share by the selling price of each share with a multiplication of 100.

Required return = (Dividend / Selling price) × 100

                        = ($4 / $46) × 100

                        = 8.6956 ….. %

                        = 8.70 % rounded

Answer: 8.70 %

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