ABC Company's preferred stock is selling for $30 a share. If the required return is 8%,...

ABC Company's preferred stock is selling for $30 a share. If the required return is 8%, what will the dividend be two years from now?

please show steps in excel

Expert Solution

Let dividend 2 years from now be X

Given, rate of return (r ) = 8% and current price= $30

Price= D1/r Where D1= Dividend in year 1.

Price in year 1 = X/0.08

Price now=(X/0.08)/1.08 = $30

X/0.08 = 30*1.08 = 32.40

Therefore, Dividend in year 2 (value of X)= 32.40*0.08 = $2.592

jeff jeffy answered 2 years ago

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