Category: Business and Money > Accounting
Asked by: k9queen-ga
List Price: $3.00
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?
Re: fiancial accounting
Answered By: funkywizard-ga on 11 Feb 2003 05:57 PST
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.
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Thank you! Sounds good to me! Quick answer!
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