Question
In: Finance
Fenway Athletic Club plans to offer its members preferred stock with a par value of $100...
Fenway Athletic Club plans to offer its members preferred stock with a par value of $100 and an annual dividend rate of 6%. What price should these members be willing to pay for the returns they want?
a. Theo wants a return of 9%. $_______ (Round to the nearest cent.)
b. Jonathan wants a return of 13%. $_______ (Round to the nearest cent.)
c. Josh wants a return of 15%. $_______ (Round to the nearest cent.)
d. Terry wants a return of 17%. $_______ (Round to the nearest cent.)
Solutions
Expert Solution
Answer to Part a.:
Annual Dividend = $100 * 6% = $6
Required Return on Preferred Stock = Annual Dividend / Current
Price * 100
9 = $6 / Current Price * 100
Current Price = $66.67
Theo will be willing to pay a price of $66.67.
Answer to Part b.:
Annual Dividend = $100 * 6% = $6
Required Return on Preferred Stock = Annual Dividend / Current
Price * 100
13 = $6 / Current Price * 100
Current Price = $46.15
Jonathan will be willing to pay a price of $46.15.
Answer to Part c.:
Annual Dividend = $100 * 6% = $6
Required Return on Preferred Stock = Annual Dividend / Current
Price * 100
15 = $6 / Current Price * 100
Current Price = $40.00
Josh will be willing to pay a price of $40.00
Answer to Part d.:
Annual Dividend = $100 * 6% = $6
Required Return on Preferred Stock = Annual Dividend / Current
Price * 100
17 = $6 / Current Price * 100
Current Price = $35.29
Terry will be willing to pay a price of $35.29
jeff jeffy answered 1 year agoRelated Solutions
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