You are considering the purchase of 150 shares of perferred stock. Your required return is 11%. If the stock is currently selling for $40 and pays a dividend of $5.25, should you purchase the stock?
Yes, We should purchase the stock.
Vps = D/Kps
Kps = D/Vps
Kps = 5.25 / $40
Kps = 13.13%
We should purchase the stock because it is paying greater dividend rate than requird rate.