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Problem:

Holdup Bank has an issue of preferred stock with a $8 stated dividend that just sold for $86 per share.

Required:

Question: What is the bank's cost of preferred stock?

Hint: The price of any asset is the present value of future cash flows. The preferred stock has a constant dividend, and is perpetuity. Use the present value equation for perpetuity to figure out the required return on the preferred stock

Note: Can someone please give me a step by step solution?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91174866

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