Question

Alistar Inc. recently issued $90 par value preferred stock that pays a 8.25% dividend rate per year. If the stock is currently selling for $85, what is the expected return of this preferred stock?

Answer 1

8.74%

Step-by-step explanation:

Calculation for the expected return of this preferred stock

First step is to find the Annual dividend using this formula

Annual dividend= Par value x Dividend rate

Let plug in the formula

Annual dividend=$90 par value×8.25% dividend rate

Annual dividend=7.425

Second step is to calculate for the expected return of the preferred stock

Using this formula

Expected return=Annual dividend/Current price

Let plug in the formula

Expected return=7.425/$85

Expected return=8.74%

Therefore the expected return of this preferred stock will be 8.74%