contestada

Southern Utilities just issued some new preferred stock. The issue will pay a $19 annual dividend in perpetuity beginning 9 years from now. What is one share of this stock worth today if the market requires a 7 percent return on this investment

Respuesta :

Answer:

One share of this stock will be $97.20

Explanation:

We have given annual dividend = $19

Time t = 9 year

Market required return = 9%

Stock price in 9 year

[tex]P_9=\frac{annual\ dividend}{required\ rate}[/tex]

[tex]P_9=\frac{19}{0.09}=211.11[/tex]

Now current stock price is equal to

[tex]P_0=\frac{P_9}{(1+rate)^9}[/tex]

[tex]P_0=\frac{211.11}{(1+0.09)^9}[/tex]

[tex]P_0=97.20[/tex]

So one share of this stock will be $97.20

Otras preguntas