E-Eyes.com just issued some new preferred stock. The issue will pay an annual di
ID: 2759854 • Letter: E
Question
E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $29 in perpetuity, beginning 18 years from now. If the market requires a return of 4.3 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.)
316.09 IS THE WRONG ANSWER. Please do not return that as the answer.
E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $29 in perpetuity, beginning 18 years from now. If the market requires a return of 4.3 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.)
316.09 IS THE WRONG ANSWER. Please do not return that as the answer.
Explanation / Answer
We will use PVF of 17th year as discount factor and not eighteenth year due to below reason Dividend at end of 18th year 29.00 Price at end of 17th year = 29/4.3% 674.42 share of preferred stock cost today = 674.42 * .4888 329.68 Time PVF 1.00 0.9588 2.00 0.9192 3.00 0.8813 4.00 0.8450 5.00 0.8102 6.00 0.7768 7.00 0.7447 8.00 0.7140 9.00 0.6846 10.00 0.6564 11.00 0.6293 12.00 0.6034 13.00 0.5785 14.00 0.5547 15.00 0.5318 16.00 0.5099 17.00 0.4888
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