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.
This exercise is part of the course
Equity Valuation in R
Exercise instructions
- Calculate the amount of preferred dividends.
- Calculate the value of the preferred stock assuming no growth in preferred dividends.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Calculate dividend of preferred stock
div <- ___
div
# Calculate value of preferred stock
pref_value <- ___
pref_value