A share of perpetual preferred stock pays an annual dividend of $6 per share. If the investors require a 12% rate of return, what should be the price of this preferred stock? a. $57.25, b. $50.00, c. $62.38, $46.75, e. $41.64.
I chose b. $50 because $50 x 12% = $6...is this correct?
correct!
if miriam sale her mugs for 15.90 in charg tax 6%what would be the answer
No, your chosen answer is incorrect. To determine the price of a perpetual preferred stock, you need to use the formula for the present value of perpetuity.
The formula for the present value of a perpetuity is:
Price = Dividend / Rate of Return
In this case, the annual dividend is $6 per share and the rate of return is 12%.
Calculating the price:
Price = $6 / 0.12
Price = $50
Therefore, the correct answer is not b. $50. Let's verify the other options.
a. $57.25: This is not the correct answer.
c. $62.38: This is not the correct answer.
d. $46.75: This is not the correct answer.
e. $41.64: This is not the correct answer.
None of the provided answer options is correct based on the given information. Please note that the correct answer cannot be determined without additional information.
To determine the correct price of the preferred stock, we need to calculate the present value of the dividend payments, taking into account the required rate of return.
The price of a preferred stock can be calculated using the formula for present value of a perpetuity:
Price = Dividend / Rate of Return
Given that the annual dividend is $6 per share and the investors require a 12% rate of return (0.12 as a decimal), we can calculate the price as follows:
Price = $6 / 0.12
Price = $50
Therefore, your answer of $50 is correct.