Question

Suppose you own a preferred stock that promises to pay an annual dividends of 8% of par value of

the stock received in semiannual basis. If par value is $50, how much the preferred stockholder will

receive?

Answer 1

A preferred stockholder with a stock having an 8% annual dividend of the par value of $50, will receive a semiannual dividend payment of $2.

Step-by-step explanation:

If an investor owns preferred stock with an annual dividend of 8% of the par value, and the par value is $50, the amount of dividend they will receive on a semiannual basis can be calculated as follows:

First, let's find the annual dividend amount:

• Annual Dividend = Par Value × Dividend Rate
• Annual Dividend = $50× 8% = $50 ×0.08 = $4

Since the dividends are paid semiannually, the investor receives half of this amount every six months:

• Semiannual Dividend Payment = Annual Dividend / 2
• Semiannual Dividend Payment = $4 / 2 = $2

Therefore, the preferred stockholder will receive $2 every six months.

Answer 2

the preferred stockholder will receive $4 in dividends per semiannual period.

Step-by-step explanation:

To calculate the amount that the preferred stockholder will receive, we need to consider the dividend rate and the par value of the stock.

Given that the preferred stock promises to pay an annual dividend of 8% of the par value on a semiannual basis, we can calculate the dividend amount per semiannual period.

Dividend per semiannual period = (Dividend rate * Par value) / 2

Dividend per semiannual period = (8% * $50) / 2

Dividend per semiannual period = (0.08 * $50) / 2

Dividend per semiannual period = $4