Question #43
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 18
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
What is the value of a fixed-rate perpetual preferred share (par value $100) with a dividend rate of 11.0% and a required return of 7.5%?
Answer Choices:
A. $147
B. $152
C. $138
Explanation
The value of the preferred is $147:
V0 = ($100par × 11%) / 7.5% = $146.67