Question

Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

Answer 1

= 8.89%

Step-by-step explanation:

Th rate of return on a preferred stock is the dividend divided by the price of the stock multiplied by 100

Return = Dividend/price × 100

Quarterly dividend = $1

Annual dividend

= 1 × 4 ( Note there are four quarters in year)

= $4

Annual rate of return

= (4/45)× 100

= 8.89%