1. Calculate the value of a preferred stock with a fixed annual dividend of $2.45, assuming...

1. Calculate the value of a preferred stock with a fixed annual dividend of $2.45, assuming a discount rate of 9.5%. Solve the problem two different ways: first by using the algebraic formula for a constant dividend preferred stock, then by using the built-in Excel function PV.

Expert Solution

Annual Dividend= $2.45

Discount Rate = 9.5%

Now Using Algebraic formula of PV of Perpetuity = Dividend/Discount rate=2.45/9%= $25.79

Now using Excel sheet the following is the solution

Rate of Interest	9.50%
NPER	999	(No. of Payments - Although this should be infinite but using 999 gives an approximation of the same)
PMT	2.45	Dividend value

Present Value of Perpetuity			25.78947
				Rate of Interest	9.50%
				NPER	999	(No. of Payments - Although this should be infinite but using 999 gives an approximation of the same)
				PMT	2.45	Divident value

				Present Value of Perpetuity			25.78947

The formula used to calculate the same is as follows:-

jeff jeffy answered 1 year ago

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