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E-Eyes has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. The required return on the stock is 7.75 percent.

Required:
On this stock, how much should you pay today?

Respuesta :

abiolataiwo2015

Answer:

$63.27

Explanation:

Calculation of how much should you pay on the stock today

First step

The Price of stock 19 years from now will be:.

20/0.075

= 266.67

Second step

The Price of stock today will be :

The price of stock from 19 years from now which is:

250 / (1.075)^19

=250/3.951489

=$63.27

Therefore how much should you pay on the stock today will be $63.27

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