E-Eyes.com Bank just issued some new preferred stock. The issue will pay an annu

Question

E-Eyes.com Bank just issued some new preferred stock. The issue will pay an annual dividend of $20 in perpetuity, beginning 20 years from now. If the market requires a return of 5.8 percent on this investment, how much does a share of preferred stock cost today?

I got 111.66 but its not right

E-Eyes.com Bank just issued some new preferred stock. The issue will pay an annual dividend of $20 in perpetuity, beginning 20 years from now. If the market requires a return of 5.8 percent on this investment, how much does a share of preferred stock cost today?

I got 111.66 but its not right

Explanation / Answer

Im going by the factors mentioned above, 20.00 dividend in year 20, 5.8% required rate of return

Current Stock price = Expected dividend in year 20 / Required rate of return

20.00 / 0.05800= 344. 82759 ( not rounded)

344.82759 / ( 1.05800)>19th year = 344.82759 / 2.91896 = 118.13

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