Graphical Designs is offering 5-5 preferred stock

Finance Dec 21, 2020

Graphical Designs is offering 5-5 preferred stock. The stock will pay an annual dividend of $5 with the first dividend payment occurring 5 years from today. The required return on this stock is 4.95 percent. What is the price of the stock today? Multiple Choice O $77.46 $75.59 O $79.33 $83.26 O $101.01

Expert Solution

First dividend is paid in 5th year = $5

Price of the preferred stock is present value of cash inflows of the stock

Price of the stock = [5 / (1.0495)⁵] + [(5/0.0495) / (1.0495)⁵]

Price of the stock = 83.26

So price of the stock today is $83.26

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