Question

Achi Corp. has preferred stock with an annual dividend of $3.21. If the required return on​ Achi's preferred stock is 8.2%​, what is its​ price? ​(​Hint: For a preferred​ stock, the dividend growth rate is​ zero.)

Answer 1

• What is its​ price?

$40,71

Step-by-step explanation:

The dividend discount model state that the price of a stock should be the result of the Present Value of all of its future dividends, the Gordon growth model indicates that:

Price per Share = D / (r - g)

Where:

D = the estimated value of next year's dividend

r = The required rate of return

g = the constant growth rate

To this case the value is: $3,21 / 0,082 = $41,71