Allison Corp. has just issued preferred stock with an annual dividend of $0.85. The preferred stock is currently selling for $18.75 per share. What is the annual yield or return (r) on this preferred stock?

The return or yield on this preferred stock is 4.53%.

Explanation:

The yield is the effective rate of interest/dividend you receive on a preferred stock based on the current price at which the stock is trading at. Thus the formula for yield on a preferred stock can be written as:

Yield or return on preferred stock = Dividend / Current share price

Yield = 0.85 / 18.75 = 0.0453 or 4.53%