Question

Lancashire railway company pays an annual dividend rate of 9.60% on its preferred stock that currently returns 12.86% and has a par value of $100.00 per share. What is the value of LRC's preferred stock?
a $111.98 per share
b $74.65 per share
c $100.00 per share
d $89.58 per share

Answer 1

Answer:

Value of stock = 74.65 per share

so correct option is b $74.65 per share

Explanation:

given data

annual dividend rate = 9.60%

returns = 12.86% = 0.1286

par value = $100.00 per share

to find out

preferred stock

solution

we get here first Value of stock tat is express as

Value of stock = $\frac{dividend}{return}$   ............1

here dividend is 9.60% ×  100 = $9.60

put here value we get

Value of stock = $\frac{9.6}{0.1286}$

Value of stock = 74.65 per share

so correct option is b $74.65 per share