Question
The market price of a share of preferred stock is $27.93. The market uses a discount rate of 7.14%. What is the dividend?
Answers
GPT-4o mini
To find the dividend of a share of preferred stock given its market price and the discount rate, you can use the formula for the price of preferred stock:
\[
P = \frac{D}{r}
\]
Where:
- \(P\) is the price of the stock (in this case, $27.93),
- \(D\) is the annual dividend,
- \(r\) is the discount rate (in this case, 7.14% or 0.0714).
You can rearrange the formula to solve for the dividend \(D\):
\[
D = P \times r
\]
Now, substituting the known values:
\[
D = 27.93 \times 0.0714
\]
Calculating this gives:
\[
D \approx 1.996622
\]
Rounding to two decimal places, the annual dividend is approximately **$2.00**.
\[
P = \frac{D}{r}
\]
Where:
- \(P\) is the price of the stock (in this case, $27.93),
- \(D\) is the annual dividend,
- \(r\) is the discount rate (in this case, 7.14% or 0.0714).
You can rearrange the formula to solve for the dividend \(D\):
\[
D = P \times r
\]
Now, substituting the known values:
\[
D = 27.93 \times 0.0714
\]
Calculating this gives:
\[
D \approx 1.996622
\]
Rounding to two decimal places, the annual dividend is approximately **$2.00**.