Question

Company BW has issued 2,000 preferred stocks. The par value is $100, dividend rate is 8%, and dividend is paid at the end of each year. Market price is $85 a share. Find the annual cost of preferred stock.

Answer 1

9.411 %

Step-by-step explanation:

COst of preferred stock can be calculated by dividing the dividend by the market price per share

DATA

Dividend rate = 8%

Par value = $100

Dividend = 8% x $100 = $8

Market price = $85

Solution

Cost of Preferred stock = Dividend / Market price

Cost of Preferred stock= 8% ×$100/$85

Cost of Preferred stock= 9.411 %