Kindzi Co. has preferred stock outstanding that is expected to pay an annual dividend of $4.18 every year in perpetuity. If the required return is 4.19 percent, what is the current stock price?

The current price of the stock is $99.76

Explanation:

The price of a stock which pays a constant dividend throughout for an indefinite period of time can be calculated using the present value of perpetuity formula. The stock qualifies as a perpetuity as it pays a constant cash flow after equal intervals of time and for indefinite time period.

The formula for the present value of perpetuity is,

Present Value = Cash Flow or Dividend / r

Where,

Present value = 4.18 / 0.0419

Present value = $99.76

So, the current price of the stock is $99.76

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