E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $12...
E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $12 in perpetuity, beginning 7 years from now. If the market requires a 9 percent return on this investment, how much does a share of preferred stock cost today?
Multiple Choice $83.48 $72.94 $133.33 $75.53 $79.50
Homework Answers
Value as on year 7=Annual dividend/required rate
=12/0.09
=133.33(Approx).
Hence value of preferred stock today=Value as on year 7*Present value of discounting factor(rate%,time period)
=133.33/1.09^6
=$79.5(Approx).
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