Achi Corp. has preferred stock with an annual dividend of $3.21. If the required return on Achi's preferred stock is 8.2% , what is its price? ( Hint: For a preferred stock, the dividend growth rate is zero.)

Question

Tara

Business

7 March, 01:31

Achi Corp. has preferred stock with an annual dividend of $3.21. If the required return on Achi's preferred stock is 8.2% , what is its price? ( Hint: For a preferred stock, the dividend growth rate is zero.)

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Answers (1)

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Garrett Gilmore · Answer 1

What is its price?

$40,71

Explanation:

The dividend discount model state that the price of a stock should be the result of the Present Value of all of its future dividends, the Gordon growth model indicates that:

Price per Share = D / (r - g)

Where:

D = the estimated value of next year's dividend

r = The required rate of return

g = the constant growth rate

To this case the value is: $3,21 / 0,082 = $41,71