Question

A company's $100, 8% preferred is currently selling for $85. What is the company's cost of preferred equity? 8.0%. 9.4%. 10.8%.

Answer 1

correct option is 9.4%

Step-by-step explanation:

given data

amount = $100

rate = 8%

currently selling = $85

solution

we get here cost of preferred equity that is express as

cost of preferred equity =
`(amount*rate)/(selling\ price)` ..............1

put here value we get

cost of preferred equity =
`(100*0.08)/(85)`

cost of preferred equity =
`(8)/(85)`

cost of preferred equity = 9.4%

so correct option is 9.4%