Final answer:
The payment to someone owning 300 shares of a 5.5% preferred stock with a $100 par value would be $1,650. This is calculated by taking the per-share dividend from the dividend rate and par value, then multiplying by the number of shares owned. For investments like Babble, Inc., the price per share takes into account expected profits and the time value of money to determine the stock's present value.
Step-by-step explanation:
To compute the payment to someone owning 300 shares of a 5.5% preferred stock with a par value of $100, you simply calculate the annual dividend and then multiply by the number of shares owned. A 5.5% preferred stock pays an annual dividend based on the par value, so each share gets 5.5% of $100, which equals $5.50 per share. Owning 300 shares means the payment will be $5.50 multiplied by 300, totaling $1,650.
When considering an investment in a company like Babble, Inc., the price an investor is willing to pay for a share of stock will depend on the present value of expected future profits, which takes into account the time value of money. Here, the profits are $15 million, $20 million, and $25 million over the next two years, respectively. To determine the price per share, the present value (PV) of these profits is calculated using a chosen interest rate, and then divided by the number of shares to find the price per share.