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    Estimating the Fair Value of a Preferred Stock

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    The preferred stock of the Clarence Radiology Company has a par value of $100 and a $9 dividend rate. You require an 11 percent rate of return on this stock. What is the maximum price you would pay for it? Would you buy it at a market price of $96?

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    Solution Preview

    Dividend=D=$9
    Required rate of return=r=11%
    Fair price of ...

    Solution Summary

    Solution briefly depicts the steps to estimate the fair price of a preferred stock in the given case.

    $2.19