Question

Riley is considering the purchase of 350 shares of the preferred stock of Marston Manufacturing Company. The stock carries a par value of $100 per share and an annual dividend rate of 5.75%. Alternative investments of comparable risk are generating yields of 6.25%. Given this information, the per-share value of Marston’s preferred stock should be:

Answer 1

Answer:

The per-share value of Marston’s preferred stock should be $92

Explanation:

The computation of the per-share value of Marston’s preferred stock is shown below:

= (Annual Dividend rate) ÷ (yields generation) × 100

= (5.75%) ÷ (6.25%) × 100

= $92

We simply divide the Annual Dividend rate by the yields generation or we can say it is a required rate of return.

All other information which is given in the question is not relevant. Hence, ignored it