Bob’s Bank just issued some new preferred stock. The issue will pay a $7.00 annual dividend in perpetuity, beginning four years from now. If the market requires a 6 percent return on this investment, how much does a share of preferred stock cost today?

rate of return on preferred stock = preferred dividend/ Current market price of preferred stock

6% = 7.00/ price of preferred stock

Price of preferred stock = 7.00/ 6%

= $116.67

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