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12 September, 15:42

Morris Companies has an issue of preferred stock outstanding that pays a $7.75 dividend every year in perpetuity. What is the required return if this issue currently sells for $68.19 per share?

A. 10.95 percent

B. 11.37 percent

C. 11.86 percent

D. 11.72 percent

E. 11.80 percent

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Answers (1)
  1. 12 September, 15:46
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    Option (B) is correct.

    Explanation:

    Given that,

    Issued preferred stock outstanding that pays dividend per year = $7.75

    Current selling price = $68.19 per share

    Required return = (Annual dividend : Current price) * 100

    = ($7.75 : $68.19) * 100

    = 11.37% (Approx)

    Therefore, the required return is 11.37% if this issue currently sells for $68.19 per share.
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