Business & Finance homework help| Business & Finance homework help

First Bank of Ellicott City issues perpetual preferred shares with a par value of $100 that are paid a dividend of $1.65 per quarter. To calculate the current price of this preferred stock given a required rate of return of 11.5%, we need to use the formula for a perpetuity – which is simply the dividend amount divided by the required rate of return expressed as a decimal.

Therefore, in this case it would be ($1.65/$0.115) = $14.35 which means that at an 11.5% required rate of return, the current price for each share in The First Bank’s perpetual preferred stock would be worth $14.35 (which is equal to its par value).

However, it should also be noted that since this is a perpetual security then its actual price will fluctuate based on prevailing market conditions and/or changes made to its established dividend payments over time – meaning investors may get more or less than what they paid initially depending upon when they choose purchase/sell these shares.

It is therefore important that when comparing pricing options it takes into account both short and long term risks. This will allow you to make the best investment decisions.