Question

Holdup Bank has an issue of preferred stock with a $8 stated dividend that just sold for $92 per share. What is the bank's cost of preferred stock?

Answer 1

Discount rate will be 8.6 %

Step-by-step explanation:

We have given that dividend = $8

And stock is given as = $92

We know that stock value is given by

We have to find the discount rate

Stock value
`=(dividend)/(discount\ rate)`

So discount rate
`=(dividend)/(stock\ value)=(8)/(92)=0.086=8.6` %

So discount rate will be 8.6 %