Question

A firm's preferred stock pays a $4.25 dividend per year. Suppose the requred rate of return on the stock is 9%. What is the price of one share of preferred stock? Round to the nearest cent. Do not include the dollar sign in your answer. (i.e. If your answer were $1.23, then type 1.23 without a $ sign)

Answer 1

Step-by-step explanation:

the divided will be paid constantly at the same rate and rate of the dividend will not grow in future this is called dividend at constant rate and we will apply the following formula of dividend policy to find out the price of the stock :

Present value = D/Ke

Price of the share is the future value of cash flows on the stock

Price = 4.25/9%

Price = 47.22