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Exercise

Valuing Preferred Stock

Suppose you are considering investing in a preferred stock with a stated value (stated_value) of $25, dividend rate (div_rate) of 5%, and cost of preferred equity (kp) of 10%. The cost of preferred equity is the rate used to discount cash flows generated by the preferred stock. Assuming that the growth rate of the preferred dividends is zero, what is the value of the preferred stock?

Note: The variables stated value, div_rate, and kp are stored in memory.

Instructions

100 XP
  • Calculate the amount of preferred dividends.
  • Calculate the value of the preferred stock assuming no growth in preferred dividends.