Answer to Question #98035 in Finance for Amanda

Answer to Question #98035 in Finance for Amanda

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Question #98035

The 1.2 million preferred shares of Mighty Machines Ltd., which pay a dividend rate of 6.5 percent on a stated value of $40, are currently worth $42,000,000. What is the risk premium associated with these preferred shares if the risk-free rate is 4.25 percent?

Expert’s answer

Rp = D/P + g – Rf = 40×0.065/(42,000,000/1,200,000) – 0.0425 = 0.0318 or 3.18%.

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