Kindzi Company has preferred stock outstanding that is expected to pay an annual dividend of $4.67 every year in perpetuity. If the required return is 4.54 percent, what is the current stock price?

Multiple Choice

$92.58

$102.86

$98.40

$107.53

$96.01

To find the current stock price of preferred stock, we use the formula for the price of a perpetuity, given by:

\[
P = \frac{D}{r}
\]

where:
- $ P $ is the price of the stock,
- $ D $ is the dividend, and
- $ r $ is the required return rate.

### Given values:
- Annual dividend, $ D = 4.67 $
- Required return, $ r = 4.54\% = 0.0454 $

### Calculation:
\[
P = \frac{4.67}{0.0454} \approx 102.86
\]

### Answer:
The current stock price is **$102.86**.

Would you like more details, or do you have any questions?

---

Here are 5 related questions to explore further:
1. What would the price be if the required return changed to 5%?
2. How does the stock price change if the dividend increases?
3. How would we calculate the price of preferred stock if it had a fixed term instead of perpetuity?
4. Why is the required return rate important in determining stock price?
5. How does preferred stock differ from common stock in terms of dividends?

**Tip:** For perpetuity calculations, ensure the dividend and return rate are annual for consistency.

Kindzi Company has preferred stock outstanding that is expected to pay an annual dividend of $4.67 every year in perpetuity. If the required return is 4.54 percent, what is the current stock price?

Determine the current price of Kindzi Company's preferred stock that pays an annual dividend of $4.67, given a required return of 4.54%. This finance problem involves the perpetuity pricing formula, a key concept in stock valuation, making it ideal for college-level finance students.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation