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 Subject: fiancial accounting Category: Business and Money > Accounting Asked by: k9queen-ga List Price: \$3.00 Posted: 10 Feb 2003 09:04 PST Expires: 12 Mar 2003 09:04 PST Question ID: 159501
 ```If cabin fever company's preferred stock pays quarterly dividends of \$2.50 and your required rate of return is 12%, what is the most you will pay for this stock?```
 ```This seems to be a pretty simple question, so I will do some math and come up with the answer. Please let me know if my assumptions upon which my answer are based are incorrect, and I will withdraw my answer. If a company pays out \$2.50 per share per quarter, this is equal to \$10.00 per year. If the required rate of return is 12% per year, then .12 times the stock price should less than or equal to \$10. Thusly, to make a 12% return on this investment, the most that a person would buy the stock for would be eighty three and one third dollars per share (\$83.33) Since 12% of \$83.33 is \$10, this is the amount of return one would make on the stock, and to make 12%, the stock would have to cost this much or less.```
 k9queen-ga rated this answer: and gave an additional tip of: \$3.00 ```Thank you! Sounds good to me! Quick answer!```