Answer:
the discount rate is 28.57%
Explanation:
The computation of the discount rate is shown below:
Discount rate = Dividend ÷Share Price of Preferred stock
= $20 ÷ $70
= 28.57%
By dividing the dividend from the price of the preferred stock we can get the discount rate
Hence, the discount rate is 28.57%
The discount rate is 28.57% when the investors are using it to value the stock.
The discount rate is used in the calculations of present value to find the discounting factor in cash flow analysis. It is the rate of return that is used to discount future cash flows.
The formula of discount rate is:
[tex]\text{Discount Rate} =\dfrac{\text{ Dividend}}{\text{Share Price of Preferred Stock}}[/tex]
The computation of the discount rate is shown below:
According to the given information,
Dividend = $20, and
Share Price of Preferred stock =$70.
Substitute the given values in the above formula:
[tex]\text{Discount Rate} =\dfrac{\text{ Dividend}}{\text{Share Price of Preferred Stock}}\\\\\\\text{Discount Rate} =\dfrac{\$20}{\$70}\\\\\\\text{Discount Rate} = 28.57\%[/tex]
Therefore, the discount rate is 28.57%.
To learn more about the discount rate, refer to:
https://brainly.com/question/1926659
