Alcott'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? Select one:

a. 8.03%

b. 8.24%

c. 8.45%

d. 8.67%

e. 8.89%

option (e) 8.89%

Explanation:

Data provided in the question:

Dividend paid per quarter = $1.00

Price of the stock = $45.00

Now,

Annual dividend paid = Dividend paid per quarter * 4

= $1.00 * 4

= $4.00

Therefore,

Annual rate of return = [ (Annual dividend paid) : Stock price ] * 100%

= [ $4.00 : $45 ] * 100%

= 8.89%

Hence,

Answer is option (e) 8.89%