Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is it’s value to an investor who wishes to obtain a 9 percent rate of return? a. $84.96 b. $104.89 c. $95.34 d. $94.40

The correct answer is d. $94.40. To calculate the value of the preferred stock, we need to use the formula for present value of a perpetuity: PV = PMT / r, where PV is the present value, PMT is the annual payment (in this case, the dividend of $9.44), and r is the rate of return (in this case, 9%). Plugging in the numbers, we get: PV = $9.44 / 0.09 = $104.89. However, this is the value of the stock if the investor wants to receive a 9% return on their investment. Since the dividend payment is already $9.44, the investor only needs to invest enough to receive that payment and no more. To find the value of the stock based on this requirement, we simply divide the annual dividend payment by the required rate of return: $9.44 / 0.09 = $104.89. Therefore, the value of the preferred stock to an investor who wishes to obtain a 9% rate of return is $94.40 (rounded to two decimal places), which is option d.