Sixth Fourth Bank has an issue of preferred stock with a $5.50 stated dividend that just sold for $97 per share. What is the bank’s cost of preferred stock?
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To calculate the cost of preferred stock, you need to divide the annual dividend by the market price per share.
In this case, the annual dividend is $5.50, and the market price per share is $97.
To find the bank's cost of preferred stock, use the formula:
Cost of Preferred Stock = Annual Dividend / Market Price per Share
Substituting the values:
Cost of Preferred Stock = $5.50 / $97
Cost of Preferred Stock = 0.0567
Therefore, the bank's cost of preferred stock is approximately 0.0567 or 5.67%.