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Sempra Energy has both preferred stock and common stock
Sempra Energy has both preferred stock and common stock. The preferred stock pays a perpetual dividend of $6 and you expect a 5.71% rate of return. The common stock carries a $3.87 current dividend (Do). Dividends are expected to grow by 8.3% per year and you expect a 11.5%. rate of return. What are the values of both stocks?
Expert Solution
Current value of preferred stock:-
Perpetual divident = $ 6
Expected rate of return = 5.71%
Formula - ( if divident is perpetual):-
Divident/ expected rate of return or ke
$ 6/ 5.71 % = 105.07
So therefore current value of preferred stock is (105.07)
Current value of common stock :-
D0 = $ 3.87
Growth rate = 8.3 %
Expected return = 11.5 %
Formula :- D0 + ( Growth ) / ke - Growth
D0 means current divident paid
Ke means required rate of return
$ 3.87 + 8.3 % / 11.5 - 8.3 %
$ 4.19. / 3.2 % = 130.93
So current value of common stock is ( 130.93 )
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