Question

You want to earn a 12.75% rate of return. ballroom, inc. preferred stock pays a $4.50 annual dividend. what is the maximum price you are willing to pay for one share of this stock?

Answer 1

To determine the maximum price you are willing to pay for one share of this stock, divide the dividend by the rate of return.

Step-by-step explanation:

To determine the maximum price you are willing to pay for one share of this stock, we need to use the formula for the present value of a dividend. The formula is: Max price = Dividend / Rate of Return. In this case, the dividend is $4.50 and the rate of return is 12.75%. Let's calculate:

Max price = $4.50 / 0.1275 = $35.29

Therefore, the maximum price you are willing to pay for one share of this stock is $35.29.