Question

Timeless Corporation issued preferred stock with a par value of $600. The stock promised to pay an annual dividend equal to 20.0% of the par value. If the appropriate discount rate for this stock is 13.0%, what is the value of the stock

Answer 1

Answer:

$923.08

Explanation:

Calculation to determine the value of stock

Annual Dividend = 20%*600 = D = 120

Discount rate = r = 13% = 0.13

Value of the preferred stock can be calculated using the perpetuity formula:

Value of the dividend = P = D/r = 120/0.13 = $923.08

Therefore the value of stock is $923.08