Preferred stock valuation Pioneers preferred stock is sellin

(Preferred stock valuation) Pioneer\'s preferred stock is selling for $33 in the market and pays a $3.60 annual dividend a. If the market\'s required yield is 10 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock?

Solution

a. Value of stock $    36.00 b. Yes Workings: Value of stock = Annual dividend / market required yield = $       3.60 / 10% = $    36.00 Since current selling price of stock is less than required, it is advisable to acquire the stock. Market price is showing that stock is selling at lower price.So, it is the time to acquire the stock.