Question

Perpetual preferred stock has:

Par value- $50/share

dividend rate- 7%/year

investors require- 9.5% per year return to hold pref. stock.

what is its value per share?

Answer 1

Solution
	Value per share is           $36.84
Working Notes:
Notes:	Value per share of Preferred stock means , Price of Preferred stock per share , As we know the preferred stock in perpetual in nature , so it can be value as stock with no growth DDM(Dividend discount model) in which we know the stock price is the present value of all the dividend during whole life of the stock, for perpetual stock with no growth, stock price will be computed as below mentioned way:
	Stock price = Preferred Dividend/ Required rate of return
	Preferred Dividend = Par value x Dividend rate = $50 x $7% = $3.50 per share
	Required rate of return =9.5%
	Stock price = Preferred Dividend/ Required rate of return
	=$3.50/9.5%
	=$36.842105263
	=$36.84 per share
Hence	Value per share is           $36.84
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