Question

Alpha's preferred stock currently has a market price equal to $80 per share. If the dividend paid on this stock is $6 per share, what is the required rate of return investors are demanding from Alpha's preferred stock

Answer 1

the required rate of return is 7.5%

Step-by-step explanation:

The computation of the required rate of return is shown below;

As we know that

The price of preferred stock = Dividend ÷ Required rate of returen

$80 = $6 ÷ required rate of return

So, the required rate of return is

= $6 ÷ $80

= 7.5%

hence, the required rate of return is 7.5%