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 $21 in perpetuity, beginning 10 years from now. If the market requires a return of 3.5 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

E-Eyes.com Bank just issued some new preferred stock. The issue will pay an annual dividend of $21 in perpetuity, beginning 10 years from now. If the market requires a return of 3.5 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Value of the stock in 9 years = 10th year dividend / return % = 21 / 3.5% = 600

So value of the stock today = value of stock in 9 years / (1+3.5%)^9 = 440.24

Answer: Stock price = $ 440.24

Hope this helped ! Let me know in case of any queries.

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