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enot [183]
3 years ago
13

What is the value of a preferred stock that pays a perpetual dividend of $125 at the end of each year when the interest rate is

5 percent?
Business
1 answer:
Alina [70]3 years ago
6 0

Answer: $2500

Explanation:

The value of a preferred stock that pays a perpetual dividend of $125 at the end of each year when the interest rate is 5 percent will be calculated by using the formula:

= Cf/i

where,

Cf = Cash flow = $125

i = Interest rate = 5% = 0.05

Therefore, the value of the preferred stock will be:

= Cf/i

= $125/0.05

= $2500

The value of the preferred stock is $2500.

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