Question

Test Tech has preferred stock outstanding that pays an $10.85 annual dividend. It price is $125. What is the required rate of return on the preferred stock

Answer 1

8.7%

Step-by-step explanation:

Calculation to determine the required rate of return on the preferred stock

Using this formula

Required rate of return=Annual dividend/Price

Let plug in the formula

Required rate of return=$10.85/$125

Required rate of return=0.087*100

Required rate of return=8.7%

Therefore the required rate of return on the preferred stock is 8.7%