AlwaysAround Co

question 106

Multiple Choice

AlwaysAround Co.has just issued a preferred stock that pays an annual $4 dividend.The first dividend will be received one year from today.If the required rate of return on this stock is 5%,then what is the price of the stock?

• A) $3.81
• B) $4.20
• C) $80.00
• D) none of the above

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Definitions:

Interest-Bearing Note

A debt instrument that pays interest to the holder at a fixed or variable rate until it matures.

Borrowing Funds

The act of obtaining money from another party with the promise to return the principal amount along with interest.

Accounts Payable

Accounts payable represents the amounts a company owes to suppliers or creditors for goods or services received that have not yet been paid for.

FICA Taxes

Taxes imposed on both employees and employers to fund Social Security and Medicare, based on a percentage of the employees' wages.