Question

ZZZ-Best, Inc. recently issued $65 par value preferred stock that pays an annual dividend of $17. If the stock is currently selling for $76, what is the expected return of this preferred stock?

Answer 1

r = 0.22368 or 22.368% rounded off to 22.37%

Step-by-step explanation:

The expected or required rate of return on a preferred stock is the return provided by the stock in terms of dividend as a proportion of the current market price. The expected return on a preferred stock can be calculated as follows,

r = Dividend / current market price

r = 17 / 76

r = 0.22368 or 22.368% rounded off to 22.37%