NVM's preferred stock currently has a market price equal to $80 per share. If the dividend paid on this stock is $6 per share, what is the required rate of return investors would get from NVM preferred stock?
To calculate the required rate of return on a preferred stock, you need two pieces of information: the dividend payment and the market price. In this case, the dividend payment is $6 per share, and the market price is $80 per share.
The formula to calculate the required rate of return on a preferred stock is:
Required Rate of Return = Dividend Payment / Market Price
Plugging in the given values:
Required Rate of Return = $6 / $80
Calculating the expression:
Required Rate of Return = 0.075
Therefore, the required rate of return investors would get from NVM preferred stock is 7.5%.
To arrive at this answer, you simply divide the dividend payment by the market price of the stock.