Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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![**Calculating the Price of Preferred Stock**
Achi Corp. has preferred stock with an annual dividend of $2.94. If the required return on Achi's preferred stock is 7.6%, what is its price? *(Hint: For a preferred stock, the dividend growth rate is zero.)*
---
Achi's stock price will be $[ ] (Round to the nearest cent.)
**Explanation:**
To find the price of preferred stock, you can use the formula:
\[
\text{Price} = \frac{\text{Dividend}}{\text{Required Return}}
\]
In this case, the dividend is $2.94, and the required return is 7.6% (or 0.076 when expressed as a decimal).
Substitute these values into the formula to calculate the price.](https://content.bartleby.com/qna-images/question/3f8a7250-9137-47ef-be98-4b87422d4696/a8bec5bd-97d8-40b1-843f-c2a3d1dc1610/u6dwfij_processed.jpeg)
Transcribed Image Text:**Calculating the Price of Preferred Stock**
Achi Corp. has preferred stock with an annual dividend of $2.94. If the required return on Achi's preferred stock is 7.6%, what is its price? *(Hint: For a preferred stock, the dividend growth rate is zero.)*
---
Achi's stock price will be $[ ] (Round to the nearest cent.)
**Explanation:**
To find the price of preferred stock, you can use the formula:
\[
\text{Price} = \frac{\text{Dividend}}{\text{Required Return}}
\]
In this case, the dividend is $2.94, and the required return is 7.6% (or 0.076 when expressed as a decimal).
Substitute these values into the formula to calculate the price.
![Assume Evco, Inc. has a current stock price of $49.67 and will pay a $1.85 dividend in one year; its equity cost of capital is 11%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price?
We can expect Evco stock to sell for $ [_____] (Round to the nearest cent)](https://content.bartleby.com/qna-images/question/3f8a7250-9137-47ef-be98-4b87422d4696/a8bec5bd-97d8-40b1-843f-c2a3d1dc1610/5ihl9jn_processed.jpeg)
Transcribed Image Text:Assume Evco, Inc. has a current stock price of $49.67 and will pay a $1.85 dividend in one year; its equity cost of capital is 11%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price?
We can expect Evco stock to sell for $ [_____] (Round to the nearest cent)
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