Question

A company is offering perpetual preferred stock (its dividend payments last forever) with a fixed annual dividend of $100. If your required rate of return on this investment is 12 percent, what is the value of each share

Answer 1

Answer:

833.33

Explanation:

The fixed annual dividend is $100

The required rate of return on this investment is 12%

Therefore the value for each share can be calculated as follows

= 100/(12/100)

= 100/0.12

= 833.33

Hence the value for each share is 833.33