E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stoc

Question

E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today.

If you require a return of 8.50 percent on this stock, how much should you pay today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today.

Explanation / Answer

Price of stock 19 years from now = 20/8.5% = 235.29

Price of stock today = price of stock 19 years from now/ (1.085)^19 = 49.93

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