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# Question of the Week - Equity

Des Moines, IA, USAPosts: 211 Sr Associate
edited March 2016

You are provided with the following information on a non-callable, non-convertible preferred stock:

• Face value: £65.00
• Annual dividend: £6.35
• Maturity: Perpetual
• Embedded options: None
• Required rate of return: 8.75%

The intrinsic value of this stock is closest to:

## Question of the Week - Equity 15 votes

£55
20%
£65
13%
£75
66%

• LondonPosts: 155 Jr Portfolio Manager
edited March 2016
£75
How is @AdaptPrep getting £65 for this?

Surely the formula is Value = Dividend / Required Rate of Return

£6.35 / 0.0875 = 72.57
• MA, USAPosts: 222 Jr Portfolio Manager
edited March 2016
£75
I was saying same thing last night when I answered this.  Absolutely is 75. If we don't know GGM and/or all derivations of it by now then might as well quit haha
• Des Moines, IA, USAPosts: 211 Sr Associate
£65

Sorry, the answer is 75, not 65. I didn't realize I clicked on the wrong answer choice. Here's the solution:

The formula for a non-callable, non-convertible, perpetual preferred stock is:

V_0 = D_1 / r = £6.35 / 0.0875 = £72.57