Question

In 2018, Libra Sdn Bhd issued a RM100 par value preferred stock which pays a 7...

In 2018, Libra Sdn Bhd issued a RM100 par value preferred stock which pays a 7 percent annual dividend. The company requires a 5 percent rate of return. What price would you be willing to pay for a share of the preferred stock if you receive your first dividend one year from now? If the current market is selling this preferred stock at RM12.50, will you buy? Explain your decision.please write elaborately

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Answer #1
1)
Dividend = RM 100*7% =RM 7
Value od preferres stock = Dividend / require rate
Value of preferred stock= RM 7/0.05
=RM 140
willing to pay for a share of the preferred stock = RM 140
2) Yes. Because market price is much lower than its value.

Market price =RM 12.50

Value =Rm 140
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