What Is the Value of a Preferred Stock That Pays

question 27

Multiple Choice

What is the value of a preferred stock that pays a $2.10 dividend to an investor with a required rate of return of 6% (round your answer to the nearest $1) ?

• A) $35
• B) $23
• C) $17
• D) $21

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Definitions:

Influence Market Prices

The action or power of a factor to affect the prices in a market, which could be through supply, demand, or external factors.

Externality

A consequence of an economic activity experienced by unrelated third parties; can be either positive or negative.

Neighbors

Individuals or entities located near one another, often used in the context of residential, geographic, or international proximity.

Market Failure

An instance where the free market's distribution of goods and services is inefficient, usually causing a reduction in net social welfare.