Example 3. A share of preferred stock pays a fixed annual dividend of
$2.25. Investors require a rate of return of 5.5%. What is the value of 10
shares of preferred stock?


To find the value of 10 shares of preferred stock, we first need to calculate the value of a single share. The value of a preferred stock can be determined using the formula:

\[
\text{Value of Preferred Stock} = \frac{\text{Dividend per share}}{\text{Required rate of return}}
\]

Given:
- **Annual dividend per share**: $ \$2.25 $
- **Required rate of return**: $ 5.5\% = 0.055 $

### Step 1: Calculate the value of one share

\[
\text{Value of one share} = \frac{2.25}{0.055} = 40.91
\]

### Step 2: Calculate the value of 10 shares

Value of 10 shares = 40.91*10 = $409.1

A share of preferred stock pays a fixed annual dividend of $2.25. Investors require a rate of return of 5.5%. What is the value of 10 shares of preferred stock?

Learn how to calculate the value of preferred stock paying a fixed annual dividend of $2.25, with a required rate of return of 5.5%. This example demonstrates stock valuation using basic finance concepts, suitable for Grades 10-12 students.

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