Page 12 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

LOS 49.f: Calculate the intrinsic value Session Unit 14:

of a non-callable, non-convertible
49. Equity Valuation: Concepts and Basic Tools
preferred stock., p290

Preferred stock pays a dividend that is usually fixed and usually has an indefinite maturity. When the
dividend is fixed and the stream of dividends is infinite, the infinite period dividend discount model
reduces to a simple ratio:

tanties

If dividends were paid semi-annually:

With a 1-year maturity, there are two semi-annual dividends of $2.50 remaining, and with

a required semi-annual return of 4% we have.