In 1998, Smitman Corp. issued a $50 par value preferred stock that pays a 8 percent annual dividend. Due to changes in the overall economy and in the company's financial condition investors are now requiring an 15 percent return. What price would you be willing to pay for a share of the preferred if you receive your first dividend one year from now?
1. $26.67
2. $30.00
3. $31.54
4. $33.38
5. $38.37
2007-10-14 14:00:57 · 2 answers · asked by steve 1 in Business & Finance ➔ Investing
You need to use the perpetuity formula to solve this. The formula says:
P =C/R
where P is the value, C is the payment and R is the rate.
That means that P = 0.08*50/0.15 = $26.67
2007-10-14 14:22:33 · answer #1 · answered by Ranto 7 · 0⤊ 0⤋
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2016-12-18 07:45:13 · answer #2 · answered by ? 4 · 0⤊ 0⤋