Question

Traditional bank has an issue of preferred stock with a $4.80 stated dividend that just sold for $80 a share. what is the bank's cost of preferred stock?

Answer 1

The cost of preferred stock is rate of return asked by the share holders. It can be calculated by dividing the dividend by stock's price. Bank's cost of preferred stock here is = 4.8/80 = 0.06 Or, we can say the cost of preferred stock for the bank is 6%