The Jones Company plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20%, what should be the stock's market value?

a. $ 50

b. $150

c. $ 25

d. $ 10

e. $100

c) $25

Explanation:

The value of a preferred stock is the present value of the constant dividend payable for the foreseeable future discounted at the required rate of return

Price = Constant dividend / required return

The constant dividend = Dividend rate * par value

Dividend as be given as $5 per share

requited return - 20%

So the price of the stock would be

Price = 5/0.2

= $25