Question

Wahoo just issued preferred stock at a semiannual dividend of $2 per share. If you have an annual discount rate as an investor of 8%, how much the price of the preferred stock should be

Answer 1

Answer:

The price of the preferred stock should be $ 50.

Explanation:

Price of the issued preferred stock: semianual dividend of $2 per share.

Annual discount rate: 8%

With these details we are able to perfom the following calculations:

Annual Preferred Dividend = Semi Annual Dividend x 2

= $2.00 x 2 = $4.00 per share

Then we know that the Price of Preferred Stock = Annual Dividend per share on Preferred Stock / Discount Rate

So this is= $4.00 per share / 0.08

= $50.00 per share. Price of the preferred stock