Final answer:
The simple annual rate of return on a preferred stock that pays a quarterly dividend of $0.50 and has a purchase price of $20.00 is 10%. This is calculated by multiplying the total annual dividend by 100 and then dividing by the purchase price.
Step-by-step explanation:
To calculate the simple annual rate of return on a preferred stock that pays dividends, you should first determine the total annual dividend payment and then divide it by the price you are willing to pay for the stock. In this case, the preferred stock pays a dividend of $0.50 each quarter. There are four quarters in a year, so the total annual dividend payment is $0.50 × 4 = $2.00. If you are willing to pay $20.00 for the stock, your simple annual rate of return would be calculated as follows:
Annual Rate of Return = (Annual Dividend Payment / Price Paid for Stock) × 100
Annual Rate of Return = ($2.00 / $20.00) × 100 = 10%
Therefore, the simple annual rate of return if you are willing to pay $20.00 for this preferred stock is 10%, which corresponds to option (e).