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Q: fiancial accounting ( Answered 4 out of 5 stars,   0 Comments )
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?
Subject: Re: fiancial accounting
Answered By: funkywizard-ga on 11 Feb 2003 05:57 PST
Rated:4 out of 5 stars
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

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:4 out of 5 stars and gave an additional tip of: $3.00
Thank you! Sounds good to me!
Quick answer!

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