Author Question: Assume that you would like to purchase 100 shares of preferred stock that pays an annual dividend of ... (Read 109 times)

Pea0909berry · **on:** Apr 25, 2021

Question 1

An 8 percent preferred stock with a market price of $110 per share and a $100 par value pays a cash dividend of
◦ $4.00.
◦ $80.00.
◦ $8.00.
◦ $8.80.
◦ $32.00.

Question 2

Assume that you would like to purchase 100 shares of preferred stock that pays an annual dividend of $6 per share. However, you have limited resources now, so you cannot afford the purchase price. In fact, the best that you can do now is to invest your money in a bank account earning a simple interest rate of 6%, but where interest is compounded daily (assume 365 days). Because the preferred stock is riskier, it has a required annual rate of return of 12% (assume that this rate will remain constant over the next 5 years). For you to be able to purchase this stock at the end of 5 years, how much must you deposit in your bank account today, at t = 0?
◦ $2,985.00
◦ $4,291.23
◦ $3,138.52
◦ $3,704.18
◦ $4,831.25

popopong · **Reply #1 on:** Apr 25, 2021

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