Question #101
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 39
Status: Unattempted
Question
What is the value of a fixed-rate perpetual preferred share (par value $100) with a dividend rate of 7.0% and a required return of 9.0%?
Answer Choices:
A. $56
B. $71
C. $78
Explanation
The value of the preferred is $78:
V0 = ($100par × 7%) / 9% = $77.78