The Corporation issues preferred stock that pays a dividend of Rs. 4.50 indefinitely. Investors could invest their money at 8%. For how much will the preferred stock sell?
Answers
Given : The Corporation issues preferred stock that pays a dividend of Rs. 4.50 indefinitely. Investors could invest their money at 8%.
To Find : For how much will the preferred stock sell
Solution:
Let say preferred stock sell = X rs
Investors could invest their money at 8%.
=> interest income = X * 8 * 1/ 100 = 8X/100 = 2X/25
a dividend of Rs. 4.50
=> 2X/25 = 4.50
=> X = 56.25
Rs 56.25 stock will give same yield
and lesser will give more profit than 8 %
preferred stock sell ≤ 56.25
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