Yukon Ltd preference shares pay an annual dividend of $10 per share in a year. If the effective annual interest rate is 20%, calculate the share price today in the following cases:


1.Dividends will be paid at the end of a year and the expected selling price of this share is $200 in one year.

2.Dividends will be paid at the end of each year for two years and the expected selling price of this share is $200 in two years.
3.Dividends will be paid at the end of each year for three years and the expected selling price of this share is $200 in three years.

4.Dividends will be paid at the end of each year that will continue indefinitely.

5.Dividends will be paid at the end of each year that will continue indefinitely and dividends are expected to grow at 5% per annum

Answer rating: 100% (QA)

To calculate the share price today in each of the given cases we can use the concept of the present value of future cash flows The present value represents the current worth of future cash flows takin... View the full answer