E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay...

E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 8.75 percent on this stock, how much should you pay today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price $

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Expert Solution

Value as on year 20=Annual dividend/required rate

=$20/0.0875

=228.571429

Hence current value=Value as on year 20*Present value of discounting factor(rate%,time period)

=228.571429/1.0875^19

=$46.44(Approx).

jeff jeffy answered 2 years ago

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