The intrinsic value of this preferred stock is $37.06
The company's preferred stock is a hybrid instrument with characteristics of both equity and debt.
According to information supplied by Federated Holdings:
Par value of the preferred stock = $90
Annual dividend rate = 7%
Required return, Kp = 17%
Computation:
Finding the yearly dividends per share is the first step.
Annual dividend per share = Par value of preferred stock * Annual dividend rate
Annual dividend per share = $90 * 7%
Annual dividend per share = $6.30
The intrinsic share value must then be determined.
Intrinsic share value = Annual dividend per share / Required return on preferred stock
Intrinsic share value = $6.30 / 17%
Intrinsic share value = $37.06
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