Problem 7-11 Valuing Preferred Stock [LO 1] E-Eyes.com has a new issue of prefer

Question

Problem 7-11 Valuing Preferred Stock [LO 1]

E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today.

If you require a 9.00 percent return on this stock, how much should you pay today? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)

E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today.

Explanation / Answer

Hi,

Please find the answer as follows:

P19 = D20/Rate

=20/.09 = 222.22

PO = 222.22/(1+.09)^19 = 43.219 or 43.22

Stock Price is 43.22

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects