There is a preferred stock that pays a dividend of $5.00 at the end of each year. The stock sells for $60.00 a share. What is the oreferred stocks require rate of return?
(5/60) is the dividend as a fraction of the price
to go from fraction to percent, multiply by 100
5/60 = 0.083 = 8.3%
$7.97
To calculate the preferred stock's required rate of return, we need to use the formula:
Required Rate of Return = Dividend / Stock Price
In this case, the dividend is $5.00 and the stock price is $60.00.
Required Rate of Return = $5.00 / $60.00
To calculate the required rate of return, we divide the dividend by the stock price:
Required Rate of Return = 0.0833 or 8.33%
Therefore, the preferred stock's required rate of return is 8.33%.