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13 March, 04:50

A preferred stock with a face value of $25 is sold at 95% of its par value. If the annual dividend of the stock is $3, what is the required rate of return on this stock

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  1. 13 March, 05:35
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    r = 12.63%

    Explanation:

    We can use the following formula to calculate the stock price.

    P = Annual Dividend / r

    P: stock price = 95% x $25 = $23.75

    r: required return (Missing value)

    By inputting the number into the above equation, we have the following:

    23.75 = 3 / r

    --> r = 12.63%
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