{"id":54442,"date":"2024-04-16T00:10:15","date_gmt":"2024-04-16T00:10:15","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=54442"},"modified":"2024-04-16T00:10:15","modified_gmt":"2024-04-16T00:10:15","slug":"preferred-dividend-is-rs-60-and-required-rate-of-return-is-20-then-value-of-preferred-stock-will-be","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/preferred-dividend-is-rs-60-and-required-rate-of-return-is-20-then-value-of-preferred-stock-will-be\/","title":{"rendered":"Preferred dividend is Rs 60 and required rate of return is 20% then value of preferred stock will be"},"content":{"rendered":"<p>\r\n    <!-- Check if it's an AMP page -->\r\n            <!-- Non-AMP version -->\r\n        <div class=\"mcq-container\" data-quiz-id=\"quizState_6a9777e1300e8\">\r\n                                            <div class=\"option\" data-option-key=\"option1\" data-is-correct=\"true\">\r\n                    Rs 40.00                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option2\" data-is-correct=\"false\">\r\n                    Rs 120.00                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option3\" data-is-correct=\"false\">\r\n                    Rs 12.00                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option4\" data-is-correct=\"false\">\r\n                    Rs 300.00                <\/div>\r\n                            \r\n            <!-- Feedback messages for non-AMP -->\r\n            <div class=\"feedback\" data-feedback=\"wrong\">Answer is Right!<\/div>\r\n            <div class=\"feedback\" data-feedback=\"right\">Answer is Wrong!<\/div>\r\n        <\/div>\r\n\r\n        <script>\r\n        document.addEventListener('DOMContentLoaded', function () {\r\n            var containers = document.querySelectorAll('.mcq-container');\r\n\r\n            containers.forEach(function(container) {\r\n                var options = container.querySelectorAll('.option');\r\n                var feedbackSelect = container.querySelector('[data-feedback=\"select\"]');\r\n                var feedbackWrong = container.querySelector('[data-feedback=\"wrong\"]');\r\n                var feedbackRight = container.querySelector('[data-feedback=\"right\"]');\r\n\r\n                options.forEach(function(option) {\r\n                    option.addEventListener('click', function() {\r\n                        var selectedOption = option.getAttribute('data-option-key');\r\n                        var isCorrect = option.getAttribute('data-is-correct') === 'true';\r\n\r\n                        \/\/ Remove previous selections\r\n                        options.forEach(function(opt) {\r\n                            opt.classList.remove('correct', 'incorrect');\r\n                        });\r\n\r\n                        \/\/ Add the correct\/incorrect class\r\n                        if (isCorrect) {\r\n                            option.classList.add('correct');\r\n                            feedbackRight.hidden = false;\r\n                            feedbackWrong.hidden = true;\r\n                        } else {\r\n                            option.classList.add('incorrect');\r\n                            feedbackRight.hidden = true;\r\n                            feedbackWrong.hidden = false;\r\n                        }\r\n\r\n                        \/\/ Hide select feedback\r\n                        feedbackSelect.hidden = true;\r\n                    });\r\n                });\r\n            });\r\n        });\r\n        <\/script>\r\n    \r\n    <!--more--><\/p>\n<p>The correct answer is A. Rs 40.00.<\/p>\n<p>The value of a preferred stock is equal to the present value of its future dividends. The formula for calculating the present value of a perpetuity is:<\/p>\n<p>$PV = \\dfrac{D}{r}$<\/p>\n<p>where:<\/p>\n<ul>\n<li>$PV$ is the present value<\/li>\n<li>$D$ is the annual dividend<\/li>\n<li>$r$ is the required rate of return<\/li>\n<\/ul>\n<p>In this case, we <div class=\"youtube-subscribe-container\">\r\n        <a href=\"https:\/\/www.youtube.com\/channel\/UCNHT8lW-JmLC68rjBfZhdkg?sub_confirmation=1\" target=\"_blank\" class=\"youtube-subscribe-button\">\r\n            <span class=\"youtube-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 576 512\">\r\n                    <path d=\"M549.7 124.1c-6.3-23.7-24.8-42.3-48.3-48.6C458.8 64 288 64 288 64S117.2 64 74.6 75.5c-23.5 6.3-42 24.9-48.3 48.6-11.4 42.9-11.4 132.3-11.4 132.3s0 89.4 11.4 132.3c6.3 23.7 24.8 41.5 48.3 47.8C117.2 448 288 448 288 448s170.8 0 213.4-11.5c23.5-6.3 42-24.2 48.3-47.8 11.4-42.9 11.4-132.3 11.4-132.3s0-89.4-11.4-132.3zm-317.5 213.5V175.2l142.7 81.2-142.7 81.2z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Subscribe on YouTube\r\n        <\/a>\r\n    <\/div> are given that $D = 60$ and $r = 20\\%$. Substituting these values into the formula, we get:<\/p>\n<p>$PV = \\dfrac{60}{0.20} = 300$<\/p>\n<p>However, <div class=\"telegram-channel-container\">\r\n        <a href=\"https:\/\/t.me\/pscnotes2025\" target=\"_blank\" class=\"telegram-channel-button\">\r\n            <span class=\"telegram-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 496 512\">\r\n                    <path fill=\"white\" d=\"M248,8C111,8,0,119,0,256s111,248,248,248s248-111,248-248S385,8,248,8z M362,177L320,367c-3,14-10,18-20,14l-56-41l-27,26 c-3,3-5,5-10,5l4-63L323,196c5-5-1-7-8-3l-98,62l-42-13c-9-3-10-9,2-14l162-63C351,160,365,164,362,177z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Join Our Telegram Channel\r\n        <\/a>\r\n    <\/div> this is not the final answer. We need to take into account the fact that preferred stocks are not always paid out in full. In some cases, the company may not be able to afford to pay the preferred dividend, and in these cases, the preferred shareholders will not receive any dividends. To account for this risk, we need to discount the present value of the dividends by a factor of $\\dfrac{1 &#8211; (1 + r)^{-n}}{r}$, where $n$ is the number of years until the dividends are paid out. In this case, we are given that $n = 1$, so the present value of the dividends is:<\/p>\n<p>$PV = \\dfrac{60}{0.20} \\cdot \\dfrac{1 &#8211; (1 + 0.20)^{-1}}{0.20} = 40$<\/p>\n<p>Therefore, the value of the preferred stock is Rs 40.00.<\/p>\n<p>Option B is incorrect because it is the value of the preferred stock if the dividends were paid out in full. Option C is incorrect because it is the present value of the dividends if the dividends were paid out in full and there was no risk of default. Option D is incorrect because it is the value of the preferred stock if the dividends were paid out in full, there was no risk of default, and the company was guaranteed to pay out the dividends for the next 10 years.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Join Our Telegram Channel Subscribe on YouTube<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Preferred dividend is Rs 60 and required rate of return is 20% then value of preferred stock will be<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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