Question

In 2018, Venus Fly Co. issued a $75 par value preferred stock that pays a 7 percent annual dividend. Due to changes in the overall economy and in the company's financial condition investors are now requiring a 5 percent return. What price would you be willing to pay for a share of the preferred if you receive your first dividend one year from now?

Answer 1

$105

Step-by-step explanation:

Calculation for What price would you be willing to pay for a share of the preferred

First step is to find the Dividend using the formula

Dividend =Par value preferred stock × Annual dividend percentage

Let plug in the formula

Dividend=$75 par value ×7%

Dividend=$5.25

Second step is to find the price using this formula

Price = Dividend ÷ Return percentage

Let plug in the formula

Price=$5.25÷5%

Price =$105

Therefore the price you would be willing to pay for a share of the preferred if you receive your first dividend one year from now will be $105.