Question

The dividend paid to a preferred stockholder is $3.50. The price of one preferred stock is $70. What is the cost of the preferred stock?

5%
10%
15%
20%

Answer 1

The cost of one preferred stock is calculated by dividing the dividend by the price. In mathematical equation this is expressed as,

C = (D / P) x 100%

where C is the cost, D is the dividend, and P is the price. Substituting the known values,

C = (($3.5)/ ($70) x 100%

C = 5%

The answer to this item is the first choice, 5%.