Question

Pioneer's preferred stock is selling for ?$35 in the market and pays a ?$3.50 annual dividend.
a. If the? market's required yield is 11 ?percent, what is the value of the stock for that? investor?
b. Should the investor acquire the? stock?

Answer 1

Dividend = $3.50

Return (Market Yield) = 11% or 0.11

Value of preferred stock = Dividend / Return

                                            = 3.50 / 11%

                                            = $31.82

Yes, the investor should acquire the stock because the value of preferred stock is less than preferred stock selling price.