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Preference shares were used as a practical example of a financial product that displays the characteristics of a perpetuity payment. (1) In order to value
Preference shares were used as a practical example of a financial product that displays the characteristics of a perpetuity payment.
(1) In order to value a preference share, we need to know the relevant discount rate. If you were asked to value a preference share for a company listed on the stock exchange, what process would you undertake to determine the appropriate discount rate / risk-adjusted required rate of return?
(2) Discuss whether in fact preference shares are indeed a good example of a perpetuity payment.
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