Preferred stock of 6$ dividend sustainable growth rate of company is 5% yield on comparable stocks is 11.5% marginal tax rate is 30% value the stock of the company the answer is 6/0.115 = 52$ why did we not use the growth rate in the denominator? I would have gotten ninety something dollars if : 6/ (0.115-0.05) is it a rule for preferred stocks to not use growth rate??

Yes..... They are treated like a perpetuity since they have no maturity... Also, unlike common shareholders, preferred shareholders receive fixed payments that do not generally grow.

A CFA Level 1 Discussion About Valuing A Preferred Stock

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This topic has 2 replies, 3 voices, and was last updated Apr-177:52 am by Snippy.

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- lulu123
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  22 Apr 2017 at 12:36 am
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  Preferred stock of 6$ dividend
  sustainable growth rate of company is 5%
  yield on comparable stocks is 11.5%
  marginal tax rate is 30%
  
  value the stock of the company
  the answer is 6/0.115 = 52$
  
  why did we not use the growth rate in the denominator? I would have gotten ninety something dollars if : 6/ (0.115-0.05)
  is it a rule for preferred stocks to not use growth rate??
- Snippy
  Participant
  - CFA Level 2
  22 Apr 2017 at 7:52 am
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  4
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  Yep. What @GraemeA said.
- GraemeA
  Participant
  22 Apr 2017 at 2:46 am
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  Yes….. They are treated like a perpetuity since they have no maturity… Also, unlike common shareholders, preferred shareholders receive fixed payments that do not generally grow.
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