Homework SourseEEyescom just issued some new preferred stock The issue will
E-Eyes.com just issued some new preferred stock. The issue will pay a constant quarterly dividend of $8.00 in perpetuity, beginning exactly one quarter from now. If the market requires an annual return of 11.00 percent with quarterly compounding, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
How much would a share of preferred stock cost today if the dividends begin exactly 10 years from now instead of next quarter? Don\'t forget that the PV formula for a perpetuity assumes the first payment is at the end of the first period. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
| E-Eyes.com just issued some new preferred stock. The issue will pay a constant quarterly dividend of $8.00 in perpetuity, beginning exactly one quarter from now. If the market requires an annual return of 11.00 percent with quarterly compounding, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Solution
Answer 1 Annual dividend= 8*4 Annual dividend= 32 stock price= Annual dividend/required return stock price= 32/.11 stock price= 290.9091 Answer 2 Stock value after 9 years= Annual dividend/required return stock price= 32/.11 stock price= 290.91 Discount factor Present value= 290.9091* 0.390925 Present value= 113.72
