Compute the present value of a preferred stock that pays,in perpetuity,an annual cash flow of $200 at an annual interest rate of 5 percent.
A) $190.48
B) $210
C) $4,000
D) $4,200

Question

Quizplus · Accepted Answer

The present value of a perpetuity is calculated using the formula PV = C / r, where C is the annual cash flow and r is the annual interest rate. Here, C = $200 and r = 0.05, so PV = $200 / 0.05 = $4,000.

Compute the Present Value of a Preferred Stock That Pays,in