Alto Company issued 7% preferred stock with a $100 par value. This means that:

A. The market price per share will approximate $100 per share.

B. Preferred shareholders are entitled to 7% of the annual income.

C. The amount of the potential dividend is $7 per year per preferred share.

D. Only 7% of the total paid-in capital can be preferred stock.

E. Preferred shareholders have a guaranteed dividend.

Answer: C. The amount of the potential dividend is $7 per year per preferred share.

Explanation:

A Preferred Share gives the holder the right to earn a fixed dividend from a company. The fixed dividend is a percentage of the par value of the Preferred stock and it is stated when issued.

Preferred Stock also receive dividends ahead of Common Shareholders.

In the above question, it is stated that the Preferred Stock was issued at 7% with a par value of $100.

This means that the annual payment expected of this share is,

= 7% * 100

= $7

The amount of the Potential Dividend is $7 per year per preferred share.

Option "C" is the correct answer to the following question.

Explanation:

Given:

Issue price of share = $100

Market price per share = $100

Preferred stock dividend rate = 7%

Computation of dividend per year:

Dividend per year = Issue price of share * Preferred stock dividend rate

Dividend per year = $100 * 7%

Dividend per year = $7

Dividends are always paid to preferred stock at fixed rates at face value.