Thread: 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.

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?
Answer to 2 decimal places.

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:

The present value factor (@ 15% because there is no other rate here) is:

The product of these is the present value of this deferred annuity at $1:

Multiply that by $8 for your final answer!

Thanks