You purchase XYZ company's perpetual preferred stock, which pays a perpetual annual dividend of $8 per share. If the appropriate discount rate for this investment is 14%, what is the price of one share of stock?
Thank You!
8/.14 = 57.14
To determine the price of one share of XYZ company's perpetual preferred stock, you need to divide the annual dividend by the appropriate discount rate.
In this case, the annual dividend is $8 per share, and the appropriate discount rate is 14%.
So, to calculate the price of one share:
Divide the annual dividend ($8) by the discount rate (0.14):
$8 / 0.14 = $57.14
Therefore, the price of one share of the XYZ company's perpetual preferred stock is $57.14.