You are considering to purchase a preferred stock. This stock pays an annual dividend of $3.88....

You are considering to purchase a preferred stock. This stock pays an annual dividend of $3.88. How much is one share of this stock worth today if the rate of return is 9.50%?

Expert Solution

Here the stock pays an annual dividend of $3.88 per annum every year

Hence this is a perpetuity

We can calculate the present value of perpetuity using the following formula

Present Value = Cash Flow/ Interest or Yeild

= 3.88/0.095 = 40.8421

Hence the value of one stock = $40.8421

jeff jeffy answered 2 years ago

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