Question

3M’s preferred stock, which pays an annual dividend of $6 per share, was trading for $60 per share yesterday. However, news broke early this morning that some of the materials the company used for one of his most popular home products is a well-known carcinogenic. Consequently, the required rate of return for the stock went up to 12%. What will be the new price of the shares?

Answer 1

Answer:

$50

Explanation:

Given that,

Annual dividend per share = $6

preferred stock trading yesterday at = $60 per share

Required rate of return for the stock went up to = 12%

Cost of preferred stock = (Dividend ÷ share price)

0.12 = (6 ÷ New share price )

New share price = (6 ÷ 0.12)

New share price = $50

Therefore, the new price of the shares will be $50.