Questions: A preferred stock from Hecla Mining Company (HLPRB) pays 3.20 in annual dividends. If the required rate of return on the preferred stock is 7.6 percent, what is the fair present value of the stock? Note: Round your answer to 2 decimal places. (e.g., 32.16)

Solution Steps

To find the fair present value of a preferred stock, we can use the formula for the present value of a perpetuity, which is given by:

\[ \text{Present Value} = \frac{\text{Annual Dividend}}{\text{Required Rate of Return}} \]

Given:

• Annual Dividend = \$3.20
• Required Rate of Return = 7.6% (or 0.076 in decimal form)

We will plug these values into the formula to calculate the fair present value.

We are given the following values:

• Annual Dividend: \( D = \$3.20 \)
• Required Rate of Return: \( r = 0.076 \)

The formula for the present value of a perpetuity is: \[ \text{Present Value} = \frac{D}{r} \]

Substituting the given values into the formula, we get: \[ \text{Present Value} = \frac{3.20}{0.076} \]

Perform the division to find the present value: \[ \text{Present Value} = 42.1053 \]

Round the result to two decimal places: \[ \text{Present Value} \approx 42.11 \]

Final Answer