E-Eyes.com just issued some new preferred stock. The issue will pay an annual di
ID: 2776442 • 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?
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?
Explanation / Answer
Value of preferred stock at the end of 18 years = 29/0.043 = 674.42
Cost today = 674.42 / (1.043)^17 =329.68
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