SOLUTION: What is the value of a preferred stock that pays a $2.10 dividend annually to an investor with a required rate of return of 11%? (Round your answer to the nearest $1)
A. $17
B
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A. $17
B
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Question 72571: What is the value of a preferred stock that pays a $2.10 dividend annually to an investor with a required rate of return of 11%? (Round your answer to the nearest $1)
You can put this solution on YOUR website! What the question is asking is if you get an 11% return (or 0.11 return which is the decimal
equivalent of 11%), how much will you have invested if you collect $2.10?
.
So you can write an expression for the Amount invested (call it A) that say 11% of A equals $2.10.
.
The equation is
.
Solve this equation by dividing both sides by 0.11 to get:
. which rounded to the nearest dollar is $19.00. Answer B
is the correct one.
.
Hope this helps you to understand the value of using money to make more money and how to
do the calculations that help you to figure out how to handle money wisely.
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