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?
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 %