Question

Farmex Inc. has preferred stock outstanding that is paying a dividend of $5.25 per share (per year). Investors expect Farmex to have no problem in paying these dividends each year. If investors have a required return of 7.9% for preferred stock of this risk level, what should be the value (or price) of the stock?

Answer 1

The value or price of the preferred stock should be around $66.46.

Step-by-step explanation:

This is determined by dividing the annual dividend of $5.25 by the required return rate of 7.9%. It represents the amount that investors are willing to pay for the stock based on the expected future dividends.