You wish to sell a perpetual preferred share with a par value of $25.00, which pays a quarterly dividend of $0.25. If other preferred shares of similar quality are currently yielding 3.5%, what price should you expect to receive for your share?
The market value of a perpetual preferred share is calculated by dividing the annual dividend by the yield of similar shares. Annual dividend = $0.25 × 4 = $1.00. Price = $1.00 / 0.035 = $28.57. The feedback from the document states:
"The current market value of a perpetual preferred share is calculated by dividing the annual dividend in dollars by the annual yield currently offered on preferred shares of a similar level of risk. In this case, the share would be valued as: ($0.25 × 4) / 0.035 = $28.57."
[Reference: Chapter 7 – Types of Investment Products and How They Are TradedLearning Domain: Understanding Investment Products and Portfolios, , , , ]
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit