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How to calculate the value of preferred stock？

帮考网校2020-10-10 17:52:55

The value of preferred stock can be calculated using the following formula:

Value of preferred stock = Annual dividend payment / Required rate of return

The annual dividend payment is the amount of money paid out to preferred stockholders each year. This can be found in the company's financial statements or dividend announcement.

The required rate of return is the minimum rate of return that an investor expects to earn on an investment. This is usually based on the risk associated with the investment and can be estimated using various methods such as the capital asset pricing model (CAPM).

Once you have determined the annual dividend payment and required rate of return, you can plug them into the formula to calculate the value of preferred stock. For example, if a company pays an annual dividend of $5 per share on its preferred stock and the required rate of return is 8%, the value of the preferred stock would be:

Value of preferred stock = $5 / 0.08 = $62.50 per share.