Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?
To find the nominal annual rate of return, you need to divide the annual dividend by the price of the stock and then multiply the result by 100 to express it as a percentage.
The annual dividend for Carter's preferred stock can be calculated by multiplying the quarterly dividend by the number of dividend payments in a year (i.e., four quarters). So, the annual dividend would be $1.00 x 4 = $4.00.
Next, you divide the annual dividend ($4.00) by the price of the stock ($45.00):
$4.00 / $45.00 = 0.0889 (rounded to four decimal places)
Finally, you multiply the result by 100 to get the nominal annual rate of return as a percentage:
0.0889 x 100 = 8.89%
Therefore, Carter's preferred stock has a nominal (not effective) annual rate of return of 8.89%.