Ezzel Corporation issued perpetual preferred stock with a 10% annual dividend. The stock currently yields 8% and its par value id $1000. What is the stock's value?
To calculate the value of the perpetual preferred stock, we can use the formula for the present value of perpetuity:
Value = Dividend / Yield
Given that the annual dividend is 10% of the par value ($1000), which is $100, and the current yield is 8%, we can substitute these values into the formula:
Value = $100 / 0.08
Now we can calculate the value:
Value = $1,250
Therefore, the value of the perpetual preferred stock is $1,250.
To calculate the value of the perpetual preferred stock, you can use the formula:
Stock Value = Annual Dividend / Required Yield
In this case, the annual dividend is given as 10% of the par value, which is $1000. So the annual dividend is $1000 * 10% = $100.
The required yield is given as 8%.
Now, plug in these values into the formula:
Stock Value = $100 / 8% = $100 / 0.08 = $1250
Therefore, the value of the perpetual preferred stock is $1250.