Question

Savers has an issue of preferred stock with a stated dividend of $3.85 that just sold for $87 per share. What is the bank's cost of preferred stock?

(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of preferred stock ..... %

Answer 1

The cost of preferred stock for Savers is calculated by dividing the $3.85 dividend by the $87 share price, resulting in a cost of 4.43%.

Step-by-step explanation:

The cost of preferred stock for Savers can be determined by the dividend paid and the current price per share. To calculate it, you take the stated dividend and divide it by the current market price per share. Using the figures provided, the calculation is $3.85 dividend per share divided by the $87 per share price, which gives us approximately 0.04425287. When converted into a percentage and rounded to two decimal places, the cost of preferred stock for Savers is 4.43%.