A corporation plans to issue perpetual preferred stock with an annual dividend of $6.50 per share The required return on this preferred stock is 6.5% At what price should the stock sell?

The stock should sell at $100

Explanation:

According to the given data we have the following:

annual dividend=$6.50 per share

required return=6.5%

In order to calculate at what price should the stock sell we would have to use the following formula:

Dividend return=annual dividend

stock price

0.065=$6.50

stock price

stock price=$6.50

0.065

stock price=$100

The stock should sell at $100

The stock should sell at $100

Explanation:

Value of Stock Can be determined by calculating the present value of the future dividend associated with the stock.

As preferred stock receives perpetual dividends we will use the perpetual valuation formula, which is as follow

Value of Stock = Dividend / Required rate of return

Value of Stock = $6.50 / 6.5%

Value of Stock = $100 per share

The stock should sell at $100