Question

You are interested in buying Ohio Edison preferred stock, which is traded at $45.00 per share today. This preferred stock pays a perpetual annual dividend of $4.40 per share and has a par value of $30.00 per share. What rate of return do you expect to have by buying this preferred stock

Answer 1

9.78%

Step-by-step explanation:

Given that:

Current Trade price per share =$45

Par value = $30.00

Annual dividend = $4.40

The rate of return of a preferred stock =
`(Dividend)/( Current \ trade \ Price)`

The rate of return of a preferred stock =
`(4.40)/(45 )`

The rate of return of a preferred stock = 0.097777

The rate of return of a preferred stock = 9.7777%

The rate of return of a preferred stock
`\simeq` 9.78%