Question

If a preferred stock plans to pay a $5 dividend annually forever and you consider the risk of the company to warrant an 8% return, how much should you be willing to pay for it

Answer 1

Answer:

$62.5

Explanation:

The amount that i should be willing to pay for the preferred stock that give me $5 dividend annually forever shall be determined through following mentioned formula:

Price of share=Dividend/risk of return

Applying the data given in the question to the above mentioned formula:

Dividend=$5

Risk of return=8%

Price of share=5/8%=$62.5