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Homework answers / question archive / A new software company issues preferred shares that pay guaranteed quarterly dividend of $0
A new software company issues preferred shares that pay guaranteed quarterly dividend of $0.50 per share starting 3 months from now. You plan to buy some of the preferred shares. How much would you willing to pay per share if money is worth 4.25% compounded quarterly?
a)
$47.06
b)
$56.05
c)
$47.56
d)
$56.45
e)
$50
Computation of Price per Share:
Price per Share = Annual Dividend/Cost of Preferred Share Capital
Here,
Annual Dividend = $0.50*4 quarters = $2.00
Cost of Preferred Share Capital = 4.25%
Price per Share = $2/4.25% = $47.06
So, the correct option is A "$47.06".
