US CMA Part 2 · Chapter 3 · Question 9 of 15
Zephyr Utilities' preferred stock pays a fixed annual dividend of $4.50 per share and has no maturity. If investors require a 9% return, what is the value of one preferred share?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $50.00
Explanation
Preferred stock with a fixed dividend and no maturity is valued as a perpetuity: value = dividend / required return = $4.50 / 9% = $50.00.
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