Question

A customer buys 100 shares of preferred at $101 per share. The par value is $100. The dividend rate is 8%. Each dividend payment will be:

A. $80
B. $400
C. $800
D. $808

Answer 1

$808

Step-by-step explanation:

The shares are sold at a premium of $101, hence an additional $1.

The dividend payment will be 100 shares*$101 * 8% = $808

Answer 2

C. $800

Step-by-step explanation:

The calculation of the dividend payment is shown below:

= Number of shares bought × par value per share × dividend rate

= 100 shares × $100 × 8%

= $800

Simply we multiplied the shares bought with the par value and the dividend rate so that the exact amount can come.

Since the dividend payment is made on par value, not the issued price and we considered the same in the above calculations.