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25 April, 02:58

E-Eyes just issued some new preferred stock. The issue will pay an annual dividend of $14 in perpetuity, beginning 19 years from now. If the market requires a return of 4.4 percent on this investment, how much does a share of preferred stock cost today

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  1. 25 April, 03:15
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    Price of stock = $181.78

    Explanation:

    PV of dividend in year 13

    PV = A * (1 - (1+r) ^ (-n) / r)

    PV of dividend in (year 13) = 14 / (0.044=318.18

    PV of dividend in year 0

    PV = Div * (1+r) ^ (-n)

    Dividend in year 13, r-interest rate, n - number of years

    PV in year 0 = 318.1818182 * 1.044^ (-13) = 181.78

    Price of stock = $181.78
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Home » Business » E-Eyes just issued some new preferred stock. The issue will pay an annual dividend of $14 in perpetuity, beginning 19 years from now. If the market requires a return of 4.
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