Q853
Preferred dividend is divided for required rate of return to calculate
A.
value of number of shares
B.
value of equity
C.
value of preferred stock
AnswerD.
value of common stock
Answer: Option C
Solution
Answer: Option C
Solution:
Preferred dividend is divided for required rate of return to calculate value of preferred stock. The value of a preferred stock equals the present value of its future dividend payments discounted at the required rate of return of the stock. In most cases the preferred stock is perpetual in nature, hence the price of a share of preferred stock equals the periodic dividend divided by the required rate of return.