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what is the value of a preferred stock that has a par value of 100, a...

what is the value of a preferred stock that has a par value of 100, a required rate of return of 11% and pays a 7 percent annual dividend

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Answer #1

Information provided:

Par value of preference stock= $100

Preferred dividend= 7%

Required rate of return= 11%

Preferred dividend= 0.07*100= $7

Value of preference stock is computed using the formula below:

Value of preference stock= Preferred dividend/ Required rate of return

                                         = $7/ 0.11

                                         = $63.64.

Therefore, the value of preferred stock is $63.64.

In case of any query, kindly comment on the solution.

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