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

Answer: 8.735%

Step-by-step explanation:

From the question, we are informed that Alistar Inc. recently issued $90 par value preferred stock that pays a 8.25% dividend rate per year and that the stock is currently selling for $85.

The expected return of this preferred stock will be calculated this:

The annual dividend will be:

= $90 × 8.25%

= $90 × 0.0825

= $7.425

The expected return on the preferred stock will be:

= Annual dividend ÷ Current price

=$7.425 ÷ $85

=0.08735

=8.735%