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Samsung has preferred stock outstanding with a constant annual dividend of 3.3 that is promised forever....

Samsung has preferred stock outstanding with a constant annual dividend of 3.3 that is promised forever. Samsung has a required return of 10%.
What is the intrinsic value (fair value) of Samsung preferred stock?

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Answer #1

Intrinsic value of preferred stock is a price for the stock based solely on factor inside the company. It won't take consideration of external factor (like condition of economy,latest GDP or unemployment level) that influence market price

As per Gordon Formula

Intrinsic value preferred stock= k/(i-g)

k (Dividend recieved on stock)= 3.3

i( required rate of return)=10%

g(Growth rate )=0

Growth rate is zero since constant annual dividend is promised

Intrinsic value of Samsung Preferred stock = 3.3/ (10%-0)

= 3.3 / 0.10

= 33

The Intrinsic value of Samsung Preferred stock is 33

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