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25 Apr 2019

E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $29 in perpetuity, beginning 18 years from now. If the market requires a return of 4.3 percent on this investment, how much does a share of preferred stock cost today?

Stock Price $ ?

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Sixta Kovacek
Sixta KovacekLv2
27 Apr 2019

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Astronomical.com has a new issue of preferred stock it calls 15/15 preferred. The stock will pay a $15 dividend per year, but the first dividend will not be paid until 15 years from today. If you require an 11 percent return on this stock, how much should you pay today?

18. North Park International LLC has issued preferred stock ($65 par value) that pays an annual dividend of $5.80. The preferred stock matures in 20 years. At that time, holders of the stock will receive, at their option, either $65 or one share of common stock with a value up to $90. If the common stock is trading at a price above $90, the preferred stockholders will receive a fractional share of common stock worth $90. The current common stock pays a $1.5 per share dividend. This dividend is expected to grow at a 3 percent rate per year for the next 20 years. If the market requires a 24% rate of return on a stock of this risk and maturity, what is the maximum value for which the share can be expected to trade?

A. $25.06

B. $136.12

C. $23.84

D. $24.72

18. North Park International LLC has issued preferred stock ($65 par value) that pays an annual dividend of $5.80. The preferred stock matures in 20 years. At that time, holders of the stock will receive, at their option, either $65 or one share of common stock with a value up to $90. If the common stock is trading at a price above $90, the preferred stockholders will receive a fractional share of common stock worth $90. The current common stock pays a $1.5 per share dividend. This dividend is expected to grow at a 3 percent rate per year for the next 20 years. If the market requires a 24% rate of return on a stock of this risk and maturity, what is the maximum value for which the share can be expected to trade?

A. $25.06

B. $136.12

C. $23.84

D. $24.72

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