**Q.** A perpetual preferred stock makes its first quarterly dividend payment of $2.00 in five quarters. If the required annual rate of return is 6% compounded quarterly, the stock’s present value is *closest* to:

- $31.
- $126.
- $133.

B is correct. The value of the perpetuity one year from now is calculated as:

PV = A/*r*, where PV is the present value, A is the annuity, and *r* is expressed as a quarterly required rate of return because the payments are quarterly.PV = $2.00/(0.06/4)PV = $133.33.

**The value today is (where FV is future value) PV =** **FV** _{N}*(1 + _ **r** *) ^{–}*

**_**

^{N};**PV = $133.33(1 + 0.015)**

^{–4};**PV = $125.62 ≈ $126.**

**Question: I am confused about why we discount only 4 periods instead of 5 periods in the last step? Can someone help please?**