Ajflorence5917 Ajflorence5917

22-01-2020
Business

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What is the value of a preferred stock that pays a perpetual dividend of $150 at the end of each year when the interest rate is 7 percent

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andromache andromache

22-01-2020

Answer:

$2,143

Explanation:

The computation of the value of the preferred stock is shown below:

Value of the preferred stock = Cash flows with respect to perpetual dividend ÷ the rate of interest

= $150 ÷ 0.07

= $2,143

Simply we divided the rate of the interest by the cash flows so that the accurate value of the preferred stock can be computed

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