The market price of a share of preferred stock is $22.67. The market uses a discount rate of 7.73%. What is the dividend?

Answer 1

To find the dividend of a preferred stock, you can use the formula for the price of preferred stock:

\[ P = \frac{D}{r} \]

where:

• \( P \) is the market price of the preferred stock,
• \( D \) is the annual dividend,
• \( r \) is the discount rate (or required rate of return).

In this case, you have:

• \( P = 22.67 \)
• \( r = 0.0773 \) (7.73% as a decimal)

You can rearrange the formula to solve for \( D \):

\[ D = P \times r \]

Now plug in the values:

\[ D = 22.67 \times 0.0773 \]

Calculating \( D \):

\[ D \approx 1.75491 \]

Thus, the annual dividend is approximately $1.75.