Question

Lerman Company has preferred stock outstanding. It pays an annual dividend of $20. If its current price is $70, what is the discount rate investors are using to value the stock

Answer 1

the discount rate is 28.57%

Step-by-step explanation:

The computation of the discount rate is shown below:

Discount rate = Dividend ÷Share Price of Preferred stock

= $20 ÷ $70

= 28.57%

By dividing the dividend from the price of the preferred stock we can get the discount rate

Hence, the discount rate is 28.57%