Question

Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $3 at the end of each year. The preferred sells for $35 a share. What is the stock's required rate of return? (Assume the market is in equilibrium with the required return equal to the expected return.) Round the answer to two decimal places.

Answer 1

The stock's required rate of return is 8.57%

Step-by-step explanation:

For computing the required rate of return for the stock, we need to apply the formula which is shown below:

The Required rate of return = (Dividend ÷ price) × 100

= ($3 ÷ $35 per share) × 100

= 8.57%

The find out the required rate of return, the dividend should be proportional to the price.