Preferred stock that pays a fixed dividend can be valued

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Preferred Stock and the DDM

Preferred stock that pays a fixed dividend can be valued using the constant-growth dividend discount model. The constant-growth rate of dividends is simply zero. For example, to value a preferred stock paying a fixed dividend of $2 per share when the discount rate is 8%, we compute

V0 = $2 / .08 - 0 = $25

Reference no: EM13567737

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