Southern Utilities just issued some new preferred stock. The issue wil

QUESTION

Southern Utilities just issued some new preferred stock. The issue will pay a $19 annual dividend in perpetuity beginning 9 years from now. What is one share of this stock worth today if the market requires a 7 percent return on this investment?$157.97$164.16$189.08$241.41$271.43
According to the given information,Annual Dividend = $19Required return on Preferred stock = 7%We know that the annual dividend for Preferred stockholders does not change and remains constant until they hold the stock.Therefore, the annual dividend of $19 does not change with the number of years.The formula for calculating the Current price of preferred stock is Rp = D /

P0where Rp is the required rate of return = 7% D = $19 P0 = Price of the share Substituting the values in the above formula, we get 0.07 = $19 / P0 P0 = $19 / 0.07 = $271.43Therefore, the price of one share is $271.43The correct option is 5) $271.43

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