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12 December, 00:43

The National Bank of Columbia has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.40 on this stock. What is the current price of this preferred stock given a required rate of return of 8.5 percent?

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  1. 12 December, 01:05
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    The correct answer is $65.88.

    Explanation:

    According to the scenario, computation of the given data are as follows:

    Par value of preferred stock = $100

    Dividend (quarterly) = $1.40

    Rate of return = 8.5%

    Rate of return (quarterly) = 8.5% : 4 = 2.125%

    So, we can calculate the current price by using following formula:

    Current price = Dividend : rate of return

    By putting the value, we get

    = $1.40 : 2.125%

    = $65.88
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