Question

Preferred Products has issued preferred stock with an annual dividend of $6. 50 that will be paid in perpetuity. If the discount rate is 10%, at what price should the preferred sell? Note: Round your answer to 2 decimal places

Answer 1

To calculate the price at which the preferred stock should sell, we can use the formula for the present value of a perpetuity:

Present value = Annual dividend / Discount rate

Substituting the given values, we get:

Present value = $6.50 / 0.10 = $65.00

Therefore, the preferred stock should sell for $65.00.