Question

Each quarter, a company pays a dividend on its perpetual preference share. Today, the share is selling at $13.29. If the required rate of return for such returns is 12.6 percent p.a. compounding quarterly, what is the quarterly dividend paid by this company? (to the nearest scent; don't include $ sign)

Answer 1

As per the given information, we can calculate the Dividend paid quarterly as follows

The Current Selling Price is considered to be the Face Value of the preference Share as preference dividend is always paid on the Face Value of the share.

Face Value of Share = $ 13.29

Required rate = 12.60%

No. of quarters in a year = 4

Quartely Dividend = (Face Value * Required Return) / 4

= ( 13.29 * 12.60% ) / 4

= 1.6754 / 4

= 0.42

So, the Dividend paid quarterly is 0.42.

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