Brisbane Power issued preference shares in 1998 that had a par value of $85.The preference shares pay a dividend of 5.75%.Investors require a rate of return of 6.50% today on these shares.What is the value of the preference shares today? Round to the nearest $1.

Question

Quizplus · Accepted Answer

The formula to calculate the value of preference shares is:

Value of preference shares = dividend / required rate of return

Dividend = Par value * rate of dividend
Dividend = $85 * 5.75% = $4.89

Value of preference shares = $4.89 / 6.50%
Value of preference shares = $75 (rounded to the nearest dollar)

Therefore, the value of the preference shares today is $75. The correct answer is C.

Brisbane Power Issued Preference Shares in 1998 That Had a Par