What is the value of a preferred stock of Bank of America that pays $700 at the end of every year forever at an interest rate of 12% per year? Answer in dollars with 2 decimals.

The value of a preferred stock that pays a fixed dividend every year forever can be calculated using the formula for a perpetuity:

\[
\text{Value of Perpetuity} = \frac{D}{r}
\]

Where:
- $ D $ is the annual dividend payment,
- $ r $ is the annual interest rate (expressed as a decimal).

Given:
- $ D = 700 $ dollars,
- $ r = 12\% = 0.12 $.

Now, plug the values into the formula:

\[
\text{Value of Stock} = \frac{700}{0.12} = 5833.33
\]

So, the value of the preferred stock is **$5833.33**.

Would you like more details or have any questions? 

Here are 5 relative questions to expand on this:
1. How does the value of the stock change if the interest rate increases to 15%?
2. What happens to the value of the stock if the dividend payment decreases to $600?
3. Can this formula be used for common stocks as well? Why or why not?
4. How would inflation affect the valuation of this preferred stock?
5. What is the difference between perpetuities and annuities?

**Tip**: Always express the interest rate as a decimal when calculating perpetuities (e.g., 12% becomes 0.12).

Learn how to calculate the value of a preferred stock paying $700 annually forever at an interest rate of 12%. This problem demonstrates the concept of perpetuity in finance and includes the key formula: Value of Perpetuity = Dividend / Interest Rate. Suitable for college-level finance students.

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