ne Hold Up Bank has issued 40.000,000 shares of preferred stock. Each share pays a $3.00 quarterly vidend in perpetuity. If the next dividend is to be paid later today, and one preferred share currently costs 203.00, what is the cost of preferred equity? Calculate as an EAR, not an APR. Enter your answer as a ercent rounded to two decimals. Hint. The stock price is simply the present value of the expected future ash flows. Here the cash flows (dividends) happen to be a constant perpetuity with the first payment taking lace today.
ne Hold Up Bank has issued 40.000,000 shares of preferred stock. Each share pays a $3.00 quarterly vidend in perpetuity. If the next dividend is to be paid later today, and one preferred share currently costs 203.00, what is the cost of preferred equity? Calculate as an EAR, not an APR. Enter your answer as a ercent rounded to two decimals. Hint. The stock price is simply the present value of the expected future ash flows. Here the cash flows (dividends) happen to be a constant perpetuity with the first payment taking lace today.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Problem: Cost of Preferred Equity**
The Hold Up Bank has issued 40,000,000 shares of preferred stock. Each share pays a $3.00 quarterly dividend in perpetuity. If the next dividend is to be paid later today, and one preferred share currently costs $203.00, what is the cost of preferred equity? Calculate as an EAR, not an APR. Enter your answer as a percent rounded to two decimals.
*Hint:* The stock price is simply the present value of the expected future cash flows. Here the cash flows (dividends) happen to be a constant perpetuity with the first payment taking place today.
- Score: 6.04%
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Note: The problem requires understanding the calculation of the effective annual rate (EAR) for a preferred stock that pays constant dividends.
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