Question

The First Bank of Baruch has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.65 on this stock. What is the current price of this preferred stock given a required return of 11.6 percent? (Round your answer to the nearest whole cent.)

Answer 1

Answer:

$56.9

Explanation:

Quarterly dividend = $1.65

Required rate of return (r) = 11.60%

P0 = (Dividend * 4) / Rate of return

P0 = ($1.65 * 4) / 0.116

P0 = $6.6 / 0.116

P0 = $56.896552

P0 = $56.9

So, the current price of this preferred stock given a required return of 11.6 percent is $56.90.