Question

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?

Answer 1

The correct answer is 11.37%.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Current price = $68.19

Annual dividend = $7.75

So, we can calculate the required return by using following formula:

Required return = Annual dividend ÷ Current price

By putting the value, we get

Required return = $7.75 ÷ $68.19

= 11.37% (Approx).