Question

McKerley Corp. has preferred stock outstanding that will pay an annual dividend of $4.00 per share with the first dividend exactly 10 years from today. If the required return is 3.66 percent, what is the current price of the stock?

Answer 1

Answer: $79.08

Step-by-step explanation:

From the question, we are informed that McKerley Corp. has preferred stock outstanding that will pay an annual dividend of $4.00 per share with the first dividend exactly 10 years from today and that the required return is 3.66 percent.

The current price of the stock will be calculated thus:

At the end of year 9, the price will be:

= 4/3.66%

= 4/0.0366

= 109.29

The Price Today will be:

= 109.29/1.0366^9

= 79.08