11. Define preferred stock, determine the value of a share of preferred stock, or given its...
11. Define preferred stock, determine the value of a share of preferred stock, or given its value, calculate its expected return?
Homework Answers
11. Preferred stock holders invest capital into the business in return they recieve dividends in priority over the common stock holders. They do not enjoy voting rights and in the event of bankruptcy, they recieve payments before the common share holders and after the debt holders.
The value of a preferred stock can be calculated as :
Value of preferred stock = dividend paid/ cost of preferred stock capital
Likewise , if the value of preferred stock is given,
Then ,
Expected return = dividend / value of preferred stock
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