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.) |
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Fair market value $ per share. |
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
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 $2.25 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 1% compounded quarterly? (Round your answer to the nearest cent.)
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Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders receive...
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