Question

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $17 in perpetuity, beginning 6 years from now. If the market requires a return of 3.1 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price

$

Answer 1

Current stock price FVx(1=(1+r)^n) Here, 3.1% 5 1 A Rate per annum B Number of years C Number of compoundings per per annum A:C Rate per period (r) BxC Number of periods (n) Preferred stock price in 5 years (FV) 3.1% 548.39 =17/3.1% Current stock price $ 470.75 548.39x(1=(1+3.1%)^5)

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