Equity Investments Q232

232An Australian bank has an issue of 3.2%, AUD 50 par value, perpetual preferred shares outstanding. The required rate of return on a similar issue is 6.02%. The intrinsic value of the preferred share is closest to:

Option : B
Explanation : Dividend = 3.2% of 50 = 1.6 Intrinsic value = 1.6 / 0.0602 = 26.58.

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