Piercing Publishers recently issued preference shares with a fixed annual dividend of $3.00 per share.Investors require a 5% return on similar preference shares issues.The share is currently selling for $65.Is the share a good buy?

Question

Quizplus · Accepted Answer

To determine if a share is a good buy, we need to compare the required return of investors with the actual return offered by the share. In this case, investors require a 5% return on similar preference shares issues. The fixed annual dividend of $3 per share represents a return of ($3/$65) 4.62%, which is lower than the required return of 5%. Therefore, the share is overvalued by $5 and not a good buy.

Piercing Publishers Recently Issued Preference Shares with a Fixed Annual