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

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%