SOLUTION: Style Corporation preferred stock pays a dividen of $3.15 a year. What is the value of the stock if the required rate of return is 8.5%? (Round your answer to the nearest $1) A

Question 72880: Style Corporation preferred stock pays a dividen of $3.15 a year. What is the value of the stock if the required rate of return is 8.5%? (Round your answer to the nearest $1)

A. $23
B. $27
C. $33
D. $37

Answer by bucky(2189) (Show Source): You can put this solution on YOUR website!
Each year you can expect that 8.5% of the amount you have invested will be returned to
you in the form of a dividend. (8.5% converts to 0.085 in decimal)
.
8.5% of the amount invested in a share of stock comes to $3.15 annually. Write this in equation
form:
.
0.085*A = $3.15
.
Divide both sides by 0.085 and you get:
.
A = $3.15/0.085 = $37.06 (rounded to the nearest cent).
.
From your list of answers, $37.00 is the closest answer.
.
Hope this helps you to understand the workings of interest and dividends based on the amount
you invest.
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