Question

need help with question 3 and 4 please

Question 3 (1 point) Timeless Corporation issued preferred stock with a par value of $800. The stock promised to pay an annual dividend equal to 9.0% of the par value. If the appropriate discount rate for this stock is 11.0%, what is the value of the stock? $977.78 $654.55 $842.02 $537.38 $552.44 Question 4 (1 point) You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of $3.80. You have projected that dividends will grow at a rate of 10.0% per year indefinitely. If you want an annual return of 16.0%, what is the most you should pay for the stock now? $26.13 $63.33 $23.75 $69.67

Answer 1

Part A:

Price of Preferred Stock = Preference Div / Required Ret

= [ Par Value * Div Rate ] / Reuired Ret

= [ $ 800 * 9% ] / 11%

= $ 72 / 11%

= 654.55

Part B:

Price of Stock = D0(1+g) / [ Ke - g ]

= $ 3.8(1+0.10) / [ 16% - 105 ]

= $ 3.8(1.1) / 6%

= 4.18 / 6%

= 69.67