Question

Achi Corp, has preferred stock with an annual dividend of $3.19. If the required return on Achi's preferred stock is 8.4%, what is its price? (Hint: For a preferred stock. the dividend growth rate is zero.) 

Achi's stock price will be $ _______ (Round to the nearest cent.) 

Answer 1

Information provided:

Preferred dividend= $3.19

Required return= 8.4%

Cost of preferred stock:

Kps=Dps/P

where:

Kps= Cost of preferred stock

Dps=preferred dividend

P= Market price of preferred stock

0.0840= $3.19/ Market price of preferred stock

Market price of preferred stock= $3.19/ 0.0840

   = $37.9762 $\rightarrow$ $37.98.

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