Assume a share of preferred stock pays an annual dividend of $12. The preferred's yield is...

Question

Question

Assume a share of preferred stock pays an annual dividend of $12. The preferreds yield is 7%. What is the preferreds price

Answer 1

Answer #1

The formula to calculate stock price at time of first dividend is given below:

Annual dividend Stock price = ? 1-

Stock price = 1

12 Stock price = 1 0.93457944

Stock price = 183.42857

The first dividend is payable in 5 months. so in order to calculate the current price, discount back the above calculated value for 5 months.

Stock price = 183.42857 1.0712

Stock price = 183.42857 1.02859

Stock price = 178.33

Answer 2

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