#383 You are considering the purchase of xyz

You are considering the purchase of xyz - Business Statistics

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Free Chegg Question

You are considering the purchase of xyz company's perpetualpreferred stock, which pays a perpetual annual dividend of $8 pershare. if the apprpriate discount rate for this investment is 14%,what is the price of one share of stock?

1)7.02

2)36.43

3)57.14

4)80

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Free Chegg Answer 1

 Annual Dividend per share = $8

               Discount Rate (or) Required Return = 14% = 0.14

               Value per Share = 

                       

                                          =

                           

                                 Value per Share = 57.14  

                Thus option is 3)57.14

Free Chegg Answer 2

This bond will pay 8/1.14 + 8/1.14^2 + 8/1.14^3 + ...

Using the formula for an infinite geometric series (first term / (1+ ratio)), we have

(8/1.14) / (1 + 1/1.14) =