Question

Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 5.50 percent that sells for $95.02 per share. If the par value is $100, what is the cost of the company's preferred stock?

Answer 1

Cost of preferred stock will be 5.78 %

Step-by-step explanation:

We have given par value = $100

Dividend rate = 5.5 %

So annual dividend
`=(100* 5.5)/(100)=$5.5`

We know that cost of preferred stock is given by
`=(Annual\ dividend)/(current\ price)`

Current price is given as $95.02

So cost of preferred stock will be =
`=(Annual\ dividend)/(current\ price)=(5.5)/(95.02)=0.0578=5.78` %