1 answer

Please adhere to the rounding instructions(in red) for calculations and final answer. If the answer is...

Question:

Please adhere to the rounding instructions(in red) for calculations and final answer. If the answer is not exact, it will be incorrect. Thanks!

D | Question 10 1 pts A prestigious investment bank has designed a new security that pays a quarterly dividend of $2.81 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the stated annual interest rate is 7.27%, compounded quarterly? (Round answer to 2 decimal places. Do not round intermediate calculations). Topic: Discounted Cash Flow Valuation

D | Question 10 1 pts A prestigious investment bank has designed a new security that pays a quarterly dividend of $2.81 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the stated annual interest rate is 7.27%, compounded quarterly? (Round answer to 2 decimal places. Do not round intermediate calculations). Topic: Discounted Cash Flow Valuation

Answers

Answer: $154.61
Calculation and explanation:
Quarterly interest rate = 7.27%/4 = 1.8175%
Price of the security is the PV of the expected dividends of $2.81
which, is paid in perpetuity.
Price = 2.81/1.8175% = $            154.61
[Formula finding PV of a perpetuity is used]
.

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