Cute Camel Woodcraft Company pays an annual dividend rate of 11.00% on its preferred stock that currently returns 14.74% and has a par value of $100.00 per share. The preferred stock issue does not mature, and computes its annual dividend as the product of its dividend rate and its par value. What is the current market value of Cute Camel’s preferred stock?

$74.63

Explanation:

From the question, we are told that Cute Camel Woodcraft Company pays an annual dividend rate of 11.00% on its preferred stock which currently returns 14.74% and also has a par value of $100.00 per share. We are further informed that the preferred stock issue does not mature, and computes its annual dividend as the product of its dividend rate and its par value.

To calculate the current market value of Cute Camel’s preferred stock will be the annual preferred dividend divided by the required rate of return

The annual dividend will be:

= Par Value x Preferred Dividend Rate

= $100 x 11%

= $100 × (11/100)

= $100 × 0.11

= $11.00 per share

The Current market Value of the Preferred stock will be:

= Annual Preferred Dividend ÷ Required rate of return

= $11.00/14.74%

= $11.00/(14.74/100)

= $11.00/0.1474

= $74.63 per share

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