A Preferred Stock Is Expected to Pay a Constant Quarterly

question 38

Multiple Choice

A preferred stock is expected to pay a constant quarterly dividend of $1.25 per quarter into the future. The required rate of return,Rs,on the preferred stock is 13.5 percent. What is the fair value (or price) of this stock?

• A)$37.04
• B)$24.36
• C)$52.36
• D)$18.65
• E)None of these choices are correct.

---

Definitions:

Synergistic Benefits

Gains achieved by combining different parts of a business or companies that work better together than separately.

Merger

The combination of two or more companies into a single entity, often to expand product lines or markets.

Synergy

The positive incremental net gain associated with the combination of two firms through a merger or acquisition.

Utilization

In finance, utilization can refer to the degree to which a company’s resources or assets are being used efficiently to generate revenues or profits.