A firm has an issue of preferred stock outstanding that has a par value of $100 and a 4% dividend. If the current market price of the preferred stock is $50, the yield on the preferred stock is
To calculate the yield on a preferred stock, you need to divide the annual dividend by the market price and express it as a percentage.
In this case:
1. Calculate the annual dividend by multiplying the par value of the preferred stock by the dividend rate: $100 * 4% = $4.
2. Divide the annual dividend by the market price: $4 / $50 = 0.08.
3. Multiply the result by 100 to convert it to a percentage: 0.08 * 100 = 8%.
Therefore, the yield on the preferred stock is 8%.