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Georgia [21]
2 years ago
9

Bedekar, Inc., has an issue of preferred stock outstanding that pays a $3.40 dividend every year in perpetuity. If this issue cu

rrently sells for $91 per share, what is the required return?
Business
1 answer:
Ainat [17]2 years ago
8 0

Answer:

i=4.84%

Explanation:

the key to answer this question, is to remember the model of return for a perpeuity dividend calculation:

Value=\frac{1}{i-k}

where value is the current stock price, i is the dividend yield and k is the growth rate, so applying to this particular case we have

k=3.4/91

k=3.74%

and solving i for the previous formula:

91=\frac{1}{i-0.0374}

0.01098={i-0.0374}

i=4.84\%

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