A prestigious investment bank designed a new security that pays a quarterly divi
ID: 1169977 • Letter: A
Question
A prestigious investment bank designed a new security that pays a quarterly dividend of $2.75 in perpetuity. The first dividend occurs one quarter from today.What is the price of the security if the APR is 5.3 percent, compounded quarterly? A prestigious investment bank designed a new security that pays a quarterly dividend of $2.75 in perpetuity. The first dividend occurs one quarter from today.
What is the price of the security if the APR is 5.3 percent, compounded quarterly? A prestigious investment bank designed a new security that pays a quarterly dividend of $2.75 in perpetuity. The first dividend occurs one quarter from today.
What is the price of the security if the APR is 5.3 percent, compounded quarterly? What is the price of the security if the APR is 5.3 percent, compounded quarterly?
Explanation / Answer
Quarterly dividend = $2.75
Annual Interest Rate = 5.30%
Quarterly Interest Rate = 5.30%/4
Quarterly Interest Rate = 1.325%
Current Price = Quarterly dividend / Quarterly Interest Rate
Current Price = $2.75 / 0.01325
Current Price = $207.55
So, price of the security is $207.55