Question

Shackwah inc, preferred stock has a par value of $180.00 per share. It offers annual dividends of 7.6% of par. The preferred stock is currently selling in the market for $109.31 per share. What is the expected return of the preferred stock? Submit your final answer as a percentage rounded to two decimal places (Ex.0.00\%)

Answer 1

To calculate the expected return of the preferred stock, multiply the par value of the stock by the annual dividend rate and divide by the current market price of the stock. The expected return is then expressed as a percentage.

Step-by-step explanation:

To calculate the expected return of the preferred stock, we need to multiply the par value of the stock by the annual dividend rate. The par value is $180.00 per share and the annual dividend rate is 7.6% of par.

Expected return = Par value * Annual dividend rate

Expected return = $180.00 * 7.6%

Next, we need to divide the expected return by the current market price of the stock to get the expected return as a percentage:

Expected return as a percentage = (Expected return / Market price) * 100

Expected return as a percentage = ($180.00 * 7.6% / $109.31) * 100

Calculating the numerical value of this expression gives us the expected return as a percentage. Rounding this value to two decimal places, we find that the expected return of the preferred stock is 12.47%.