A preferred stock will pay $5.92 per share next year and every year thereafter, i.e., dividends are not expected to grow. You require a rate of return of 9.4 percent on this preferred stock. What should be the intrinsic value per share of the preferred stock?
Group of answer choices

$62.98

$60.23

$52.92

$59.22

$51.07

To calculate the intrinsic value of a preferred stock, we can use the following formula:

\[
\text{Intrinsic Value} = \frac{D}{r}
\]

Where:
- $ D $ is the annual dividend paid by the preferred stock.
- $ r $ is the required rate of return.

Given:
- $ D = 5.92 $ (dividend per share)
- $ r = 9.4\% = 0.094 $ (required rate of return)

Now, substitute these values into the formula:

\[
\text{Intrinsic Value} = \frac{5.92}{0.094}
\]

Let's calculate this value.

\[
\text{Intrinsic Value} = 62.98
\]

Thus, the intrinsic value of the preferred stock is **$62.98**.

The correct answer is **$62.98**.

Would you like more details, or do you have any further questions? Here are 5 related questions that might expand on this:

1. How is the required rate of return determined for preferred stocks?
2. What are the differences between preferred stock and common stock?
3. How does changing the dividend affect the intrinsic value of the stock?
4. What happens to the stock’s intrinsic value if the required rate of return increases?
5. How does preferred stock valuation differ from bond valuation?

**Tip:** Always check if the dividend is fixed or if there’s expected growth, as that changes the valuation formula.

A preferred stock will pay $5.92 per share next year and every year thereafter, i.e., dividends are not expected to grow. You require a rate of return of 9.4 percent on this preferred stock. What should be the intrinsic value per share of the preferred stock?

Learn how to calculate the intrinsic value of a preferred stock that pays a $5.92 annual dividend and requires a 9.4% rate of return. This step-by-step solution demonstrates how to apply the Dividend Discount Model to find the intrinsic value of $62.98. Ideal for finance students and advanced high school learners.

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