Final answer:
The dividend yield of Ovit, Inc.'s preferred stock is 7.5%, calculated by dividing the annual dividend of $1.50 by the stock price of $20.00. Examples like Babble, Inc. illustrate how present value calculations can be used to determine stock prices, considering future profits and interest rates.
Step-by-step explanation:
The question asks about calculating the dividend yield for Ovit, Inc.'s preferred stock, which has a price of $20.00 and pays an annual dividend of $1.50. Dividend yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its stock price. To calculate the dividend yield, you divide the annual dividend per share by the price per share. In this case, the dividend yield would be calculated as follows: $1.50 (annual dividend) ÷ $20.00 (stock price) = 0.075 or 7.5%. Therefore, Ovit, Inc.'s preferred stock has a dividend yield of 7.5%.
To illustrate this concept with an example, consider Babble, Inc., a company projecting profits and paying them out as dividends over the next two years. An investor looking to determine what price to pay for a share of Babble, Inc.'s stock would consider present value calculations at a given interest rate and divide the total present value of profits by the number of available shares. However, the actual price per share is subject to real-world variables such as estimated profits and chosen interest rates.