Question

A company's preferred shares pay a $4.25 dividend every three months in perpetuity. What is the...

A company's preferred shares pay a $4.25 dividend every three months in perpetuity. What is the fair market value of the shares just after payment of a dividend if the rate of return required by the market on shares of similar risk is 2% compounded quarterly? (Round your answer to the nearest cent.)

Fair market value $  per share.
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Answer #1

Fair market value of the share can be calculated using the following formula-

(Dividend which has been paid to the preference Shareholders for year/rate of return)

=(4.25*4)/(1.02)^4-1

=17/8.243216%

= 206.23

Market value of the preference share would be 206.23

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