McKerley Corp. has preferred stock outstanding that will pay an annual dividend of $5.95 per share with the first dividend exactly 11 years from today. If the required return is 4.05 percent, what is the current price of the stock?
a. $71.15.
b. $120.10.
c. $68.54.
d. $73.86.
e. $124.67.

$94.93

Explanation:

In this question we are asked to calculate the current price of the stock.

To answer the question, we employ a mathematical approach.

The current price of the stock is computed as shown below:

Present value = Future value / (1 + r )^n

where r is the required return and n is the number of years

Future value is calculated as follows:

= Annual dividend / required return

= $ 5.95 / 0.0405

= $146.91 Approximately

So the present value will be:

= $ 146.91/ 1.0405^11

= $94.93 Approximately

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answer; experimentation;