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Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year Answer

Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return?

 Ans:

  

Dps $5.00
rps 10%
   
Vps $50.00

 

Stock’s required rate of return = Dps (the preferred dividend) / Vps (value of the preferred stock)

 Stock’s required rate of return = 5 /50 = 0.10 = 10 %

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