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Math Help - Finance Help - Stock Price

  1. #1
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    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.
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  2. #2
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    Quote Originally Posted by Hockey_Guy14 View Post
    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: \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!
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