A company issued common stock and preferred stock. Projected growth rate of the common stock is 5%. The current quarterly dividend on preferred stock is $1.60. The current market price of the preferred stock is $80 and the current market price of the common stock is $95. What is the expected rate of return on the preferred stock?

Question

Regan

Business

21 November, 11:04

A company issued common stock and preferred stock. Projected growth rate of the common stock is 5%. The current quarterly dividend on preferred stock is $1.60. The current market price of the preferred stock is $80 and the current market price of the common stock is $95. What is the expected rate of return on the preferred stock?

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Blake Griffith · Answer 1

8%

Explanation:

If the current quarterly dividend on preferred stock = $1.60, that means that the current yearly dividend = $1.60 x 4 quarters = $6.40

Since the yearly dividend = $6.40 and the current market price of preferred stock is $80, its expected rate of return = $6.40 / $80 = 8%