Preferred Stock Preferred stock (or preference stock) is an Important example of a perpetuity. When a corporation sells preferred stock, the buyer is promised a fixed cash dividend every period...

Preferred Stock

Preferred stock(or preference stock) is an Important example of a perpetuity. When a corporation sells preferred stock, the buyer is promised a fixed cash dividend every period (usually every quarter) forever. This dividend must be paid before any dividend can be paid to regular stockholders. Hence the termpreferred.

Suppose the Fellini Co. wants 10 sell preferred stock at $100 per share. A very similar issue of preferred stock already outstanding has a price of $40 per share and offers a dividend of $1 every quarter. What dividend will Fellini have to offer if the preferred stock is going to sell?