Question

Each quarter, Carla Vista, Inc., pays a dividend on its perpetual preferred stock. Today the stock is selling at $64.00. If the required rate of return for such stocks is 13.00 percent, what is the quarterly dividend paid by this Carla Vista

Answer 1

The quarterly dividend paid by this Carla Vista is $2.08

Step-by-step explanation:

Dividend Growth method is used to calculate the value of stock based on the dividend payment. As the preferred share paid a fixed dividend, so there is no growth in the dividend paid.

As per given data:

Selling price = $64

Required rate of return = 13%

Use following formula of Dividend growth model

Price of Stock = ( Dividend Paid / Rate of return - Growth rate )

$64 = Dividend / 13% - 0%

$64 = Dividend / 13%

Dividend = $64 x 13% = $8.32

Quarterly Dividend = 8.32 / 4 = $2.08