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Unformatted text preview: $5.60 r(Required return on RHM)= 0.10 g(rate of growth)= 0.06 P0(current market value)= D1/(r-g) = $140.00 A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock? Solution: D(Dividend)= $3.38 P(Current $45.25 Price)= Required Return= D/P= 0.074696 7.46% A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth? Solution: D(Dividend)= $1.00 r(Required Return)= 0.03 P(Price of stock)= D/r = 33.33333 The worth of stock is calculated by dividing the dividend which is $1 by required return which is 3% i.e. 0.03 APR (Annual percentage return) which is 12%. Hence quarterly return is 12%/4 = 3%...
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- Spring '09