Answer:
The required rate of return is 7.20%
Step-by-step explanation:
The price of the preferred stock share is the dividend which is divided through the required rate of return. It is the same as the model of the constant growth, with the dividend growth rate of the 0%.
This is the special case of the model of the dividend growth where the growth rate is 0 and the level of perpetuity.
So, using the equation, compute the price per share of the preferred stock as:
Rate = Dividend (D) / Price (P0)
where
Dividend is $5.80
Price (P0) is $80.50 per share
So, putting the values above:
Rate = $5.80 / $80.50
Rate = 7.20%