Question

GS has a \( 10 \% \) preferred stock that is selling for \( \$ 120 \) a share. What is the return on the preferred stock? \[ \text { 8.33\% } \] \( 8 \% \) \[ 7.76 \% \] \( 10 \% \)

Answer 1

The return on the preferred stock is the dividend yield. We can use the formula:

Dividend yield = Annual dividend / Stock price

We are given that the preferred stock has a 10% dividend rate, which means it pays $10 per year in dividends for each share of stock. Since the stock is selling for $120 per share, we can calculate the dividend yield as:

Dividend yield = $10 / $120 = 0.0833 or 8.33%

Therefore, the correct answer is \[ \text { 8.33\% } \].