Question

Solitron’s preferred stock is selling for $42.16 and pays $1.95 in dividends. What is your expected rate of return if you purchase the security at the market price?

Answer 1

4.63%

Step-by-step explanation:

Expected / Required Rate of return is the % return demanded by an investor while purchasing a shareholder. Preferred stock is assumed to pay a dividend for infinity, the price of the share is calculated as follows for the stock paying constant dividend:

Price: Dividend / Rate of return

$42.16 = 1.95 / Rate of return

Rate of return = $1.95 / $42.16

Rate of return = 4.63%