Question

Preferred stock of leaping dolphin inc. pays 8% on the $100 par value. what is the value of the stock if the appropriate discount rate is 6%?

Answer 1

Calculate the value of the stock:

The dividend on preferred stock is received constantly for perpetuity. So, the value of preferred stock can be calculated by dividing the dividend with the required rate of return. If the dividend rate is 8% on par value of $ 100 and required rate is 6% the value of preferred stock will be P = (100x0.08)/0.06 = 8/0/06 = 133.3333333