Calculate value, dividend, required rate of return, dividend growth
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Calculate the value or the missing component for each of the following securities:
Preferred Stock A: Dividend = $3.875, Required Rate of Return = 17%, Value = ?
Preferred Stock B: Value = $78, Required Rate of Return = 24%, Dividend = ?
Preferred Stock C: Value = $38.75, Dividend = $3, Required Rate of Return = ?
Common Stock A: g = .09k = .15625, D = 2.00
Common Stock B: g = .0625, k = .1275, D = 1.05
Common Stock C: g = .05, k = .105, D = 3.50 (Dividend Growth = 10%)
Common Stock D: g = .11, k = .20, D = 5.00 (Dividend Growth = 12%)
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Solution Summary
The solution explains how to calculate the missing values relating to dividend, required rate of return, dividend growth.
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Preferred stock is a perpetuity and its value is given as
Value = Annual Dividend/Required return
use the above equation to calculate the missing value
1. Value = 3.875/17% = $22.79
2. 78 = ...
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