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)
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Question 72879: 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)
You can put this solution on YOUR website! You have invested a certain sum of money (unknown) and every year you collect 8.5% of that
investment as interest. So we can say that 8.5% of the sum (S) equals $3.15.
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In equation form this becomes:
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Notice that the decimal (0.85) is equivalent to 8.5%.
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Solve this equation by dividing both sides by (0.085). When you do you get:
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which simplifies to:
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so and this rounds to $37.00. Answer D is the selection.
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Hope this helps you to understand the problem a little better.
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