Math Problem Statement

Coconut Co. has an issue of preferred stock outstanding that pays a dividend of $8 per year in perpetuity. The required rate of return on this stock is 9%. Calculate the implied price per share. (Round to 3 decimals)

Solution

To calculateTo calculate the im theplied price implied per price per share share of of the preferred preferred stock stock that, pays we a use dividend the in perpetuity formula perpet:

[ uityP = \frac{D,}{ wer} \ use]

Where:

  • ( the ** Pperpetuity formula **) =:

Price### per Formula:

- \(P = \ Dfrac{ \D)}{ = Annualr} dividend = $\8 -] Where: - $$\( r P$$ \ =) = Required rate Price of of the preferred return stock - = \( D \9)% = =0.09 Annual Substitute the dividend values: =\ $[ 8P =- \ \(frac r \{) =8 Required rate of}{ return = 9%0. = 090} .09 ### Calculation: \\[ P =] \frac{\8}{0[ .09P}$$ =$$P = 8888..889889$$ \###] Final### Answer ✅: FinalThe Answer implied: priceThe per implied share price is per ** share$88 is. **$889**88.. --- 889**Would. you--- like### a Do breakdown you on want why a this detailed formula explanation works or of perpet howuity perpetuity formulas or valuations any are other used related in topics finance? ? ###### Related Related Questions Questions: : 1. What1 is the difference. between preferred stock How and common is stock? 2 the. perpet Howuity formula does the derived required? rate2 of return. What affect the happens price if the of preferred required rate stock? of3 return changes.? What happens3. to How the stock does price inflation affect perpet ifuity the valuations dividend? changes4? .4 How does. How this do formula market differ for interest rates common stock dividends? 5 impact. What are preferred the risks of stock investing in preferred prices stock? ###? Tip: Always express5 the required rate. of return What as a decimal when are applying financial the formulas. advantages of investing in preferred stock? ### 🔥 Tip: Always remember that preferred stock is **less risky** than common stock but **doesn't offer voting rights** in most cases.

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Math Problem Analysis

Mathematical Concepts

Finance
Perpetuity
Discounting
Valuation

Formulas

P = D / r

Theorems

Perpetuity formula

Suitable Grade Level

Grades 10-12