Haney, Inc.\'s preferred stock is selling for $ 21.25 per share in the market an

Question

Haney, Inc.'s preferred stock is selling for $ 21.25 per share in the market and pays a $ 2.50 annual dividend.
a. What is the expected rate of return on the stock? b. If an investor's required rate of return is 13 percent, what is the value of the stock for that investor? c. Should the investor acquire the stock?
(Round to two decimal places.) Haney, Inc.'s preferred stock is selling for $ 21.25 per share in the market and pays a $ 2.50 annual dividend.
a. What is the expected rate of return on the stock? b. If an investor's required rate of return is 13 percent, what is the value of the stock for that investor? c. Should the investor acquire the stock?
(Round to two decimal places.) Haney, Inc.'s preferred stock is selling for $ 21.25 per share in the market and pays a $ 2.50 annual dividend.
a. What is the expected rate of return on the stock? b. If an investor's required rate of return is 13 percent, what is the value of the stock for that investor? c. Should the investor acquire the stock?
(Round to two decimal places.)

Explanation / Answer

Answer ;

a) Market price of preferred stock = $ 21.25

annual dividend Received = $ 2.50

Expected rate of return of stock = dividend received/market price of stock*100

= 2.5/21.25*100

= 11.765%

b) if investor required rate of return is 13%

Value of stock = annual dividend/ required rate of return

= 2.5/0.13

= $ 19.23

c) Investor wants required rate of return is 13%. but actual expected rate of return is 11.765% so investor better to invest other stock.

  

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