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Homework answers / question archive / all of the above Question 24 Not yet answered The growth rate for the firm's common stock is 796 The firm's preferred stock is paying an annual dividend of $5
all of the above Question 24 Not yet answered The growth rate for the firm's common stock is 796 The firm's preferred stock is paying an annual dividend of $5. What is the preferred stock price if the required rate of return is 897 Points out of 1 Flag question Select one: O A $5 O B. $62.5 OC $500 O D. none of the above Question 25 If the required rate of return (ke) goes up and nothing else changes, the company's stock price (Po) should Not yet answered Select one: @ Ago up. Points out of 1 P Flag question O B. go down C. remain unchanged © D. need more information
1st answer:
The calculation of stock price from perpetual dividend is
= Perpetual dividend / Required Return
= 5 / 8%
= 62.5
So the correct option is "B"
2nd Answer:
If the required rate of return increases, then the price of the stock decreases, as the discounting factor increases. Ti makes the present value of all future dividends less and the stock price is less.
