Question

E-Eyes 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 return of 8 percent on this stock, how much should you pay today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price

Answer 1

The value of current stock price is equal to $57.93

Explanation:

Given dividend = $20 per year

The calculation of current stock price is as follows:

The Stock price at the beginning of 20th year is equal to = $20 divided by 8 percent = 250

Current stock price ( present value ) = $\mathrm{FV} /(1+\mathrm{r})^{\wedge} \mathrm{n}$

$=\ 250 /(1+0.08) \wedge 19$

After calculating, we get, 57.92801

Therefore, the value of current stock price is equal to $57.93 (rounded off to 2 decimal places).