- This topic has 3 replies, 3 voices, and was last updated Sep-187:31 am by
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Up0
You are provided with the following information on a
non-callable, non-convertible preferred stock:- Face value: £65.00
- Annual dividend: £6.35
- Maturity: Perpetual
- Embedded options: None
- Required rate of return: 8.75%
The intrinsic value of this stock is closest to:
- £55
- £65
- £75
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Up4
How is @AdaptPrep getting £65 for this?
Surely the formula is Value = Dividend / Required Rate of Return
£6.35 / 0.0875 = 72.57
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Up4
I was saying same thing last night when I answered this. Absolutely is 75. If we don’t know GGM and/or all derivations of it by now then might as well quit haha
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Up0
Sorry, the answer is 75, not 65. I didn’t realize I clicked on the wrong answer choice. Here’s the solution:
The formula for a
non-callable, non-convertible, perpetual preferred stock is:V_0 = D_1 / r = £6.35 / 0.0875 = £72.57
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