Question

Wallace Container Company issued $100 par value preferred stock 10 years ago. The stock provided an 8 percent yield at the time of issue. The preferred stock is now selling for $74. What is the current yield or cost of the preferred stock?

Answer 1

Current dividend paid = 8% x $100 = $8

Current yield = Current dividend paid

Current market price

Current yield = $8

$74

Current yield = 0.1081 = 10.81%

Step-by-step explanation:

Current yield is the ratio of current dividend paid to current market price. The current dividend paid is $8 and the current market price is $74. The division of current dividend by current market price gives current yield.