Question

Zap Power Company pays an annual dividend on its preferred stock of $4.54 per share. The investors have an 8% required rate of return. What is the price of the stock

Answer 1

The price of the stock is $56.75.

Step-by-step explanation:

This can be calculated using the following formula:

P = d /r ……………………………………… (1)

Where;

P = price of the stock = ?

d = preferred stock dividend = $4.54

r = required rate of return = 8%, or 0.08

Substituting the values into equation (1), we have:

P = $4.54 / 0.08

P = $56.75

Therefore, the price of the stock is $56.75.