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Question
Submitted by zliverpool on Sat, 2011-12-03 23:19
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zliverpool bought 4 out of 9 answered question(s)

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?

Answer
Submitted by Asma on Tue, 2011-12-06 08:26
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Yes, We should purchase the stock.

Stock A:

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.