Question

Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $4.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places.

Answer 1

the required rate of return i r=0.13%

Step-by-step explanation:

In order to calculate the required rate of interest in the case of a perpetual preferred stock we will use the following formula:

P(p) = D(p) / r

where P(p) is the preferred price of the stock, D(p) is the preferred dividend price and r is the required rate of interest.

This gives us the following values:

30 = 4 / r

r = 4 / 30

r = 0.13%