AGL Limited issued preference shares in 2014 that had a par value of $85.The preference share pays a dividend of 5.75%.Investors require a rate of return of 6.50% today on this share.What is the value of the preference share today? Round to the nearest $1.

Question

Quizplus · Accepted Answer

The value of the preference share today can be calculated using the formula:
Preference share value = Dividend / Required rate of return
= ($85 x 5.75%) / 6.50%
= $4.89 / 0.065
= $75.23
Rounding this to the nearest dollar gives a value of $75. Therefore, the correct choice is C.

AGL Limited Issued Preference Shares in 2014 That Had a Par