# Finance Help - Stock Price

• November 2nd 2009, 04:29 PM
Hockey_Guy14
Finance Help - Stock Price
Benson Inc. just issued some new preferred stock. The issue will pay an $8 annual dividend in perpetuity, beginning 10 years from now. If the market requires a 15 percent return on this investment, how much does a share of preferred stock cost today? Answer to 2 decimal places. I have tried this several times but cant seem to get the right answer, could use some help. • November 2nd 2009, 05:22 PM colby2152 Quote: Originally Posted by Hockey_Guy14 Benson Inc. just issued some new preferred stock. The issue will pay an$8 annual dividend in perpetuity, beginning 10 years from now. If the market requires a 15 percent return on this investment, how much does a share of preferred stock cost today?

I have tried this several times but cant seem to get the right answer, could use some help.

There appears to be lack of definitive information in this question, but I read it as a 10-year deferred perpetuity at 15%.

Perpetuity: $\ddot{a}_{\infty}=\frac{1}{i}=53.\bar{33}$

The present value factor (@ 15% because there is no other rate here) is: $v^{10}=(1.15)^{-10}=0.2472$

The product of these is the present value of this deferred annuity at $1: $PV(_{|10}\ddot{a}_{\infty}}=0.2472*53.\bar{33}=13. 1832$ Multiply that by$8 for your final answer! (Cool)
• November 2nd 2009, 05:26 PM
Hockey_Guy14
Thanks :)