(Preferred stock valuation) Pioneer's preferred stock is selling for $18 in the market and pays a $2.10 annual dividend. a. If the market's required yield is 11 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock? a. The value of the stock for that investor is $ per share. (Round to the nearest cent.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Module 4 Question 8 

(Preferred stock valuation) Pioneer's preferred stock is selling for $18 in the market and pays a $2.10 annual dividend.
a. If the market's required yield is 11 percent, what is the value of the stock for that investor?
b. Should the investor acquire the stock?
a. The value of the stock for that investor is $ per share. (Round to the nearest cent.)
Transcribed Image Text:(Preferred stock valuation) Pioneer's preferred stock is selling for $18 in the market and pays a $2.10 annual dividend. a. If the market's required yield is 11 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock? a. The value of the stock for that investor is $ per share. (Round to the nearest cent.)
Expert Solution
Step 1

The value of the stock is calculated by using the following formula:

Price of stock=d1ke-gAbbreviations: d1= dividend after growth ke= required rate of return g = growth

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