The price of preferred stock is determined by dividing the fixed dividend payment by the required rate of return.

Question

Quizplus · Accepted Answer

The price of preferred stock is determined by dividing the fixed dividend payment by the required rate of return, also known as the yield, which represents the investor's return on investment. This is because preferred stock pays a fixed amount of dividends, usually on a quarterly basis, and investors expect to receive a certain yield based on the risk and return characteristics of the stock. Therefore, the higher the required rate of return, the lower the price of preferred stock, and vice versa.

The Price of Preferred Stock Is Determined by Dividing the Fixed