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. The required return on the stock is 9.75 percent.

  
What is the price of the stock 19 years from today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Price in 19 years            $

What is the price of the stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Current stock price            $

Explanation / Answer

Value as on year 19=Annual dividend/Required return

=(20/0.0975)=$205.13(Approx)

Hence current stock price=$205.13*Present value of discounting factor(9.75%,time period)

=$205.13/1.0975^19

$35.02(Approx)

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