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McKerley Corp. has preferred stock outstanding that will pay an annual dividend of $3.85 per share with the first dividend exactly 15 years from today. If the required return is 3.63 percent, what is the current price of the stock?

Respuesta :

Answer:

$62.13

Explanation:

The computation of the current price of the stock is shown below:

= Year 13 value ÷ (1 + required rate of return)^number of years

where

Year 13 value is

= Annual dividend ÷ required rate of return

= $3.85 ÷ 3.63%

= $106.06

So, the current price is

= $106.06 ÷ (1 + 3.63%)^15

= $106.06 ÷ 1.7071924142

= $62.13

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