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The preferred stock of The Greek Shop pays an annual dividend of $1.70 and sells for $18.28 a...

Question:

The preferred stock of The Greek Shop pays an annual dividend of $1.70 and sells for $18.28 a share.

What is the rate of return on this security?

Preferred Stock:

In addition to issuing common stock and raising funds through debt instruments, a firm also raises capital through the issue of preferred stocks. From a dividend perspective, the difference between common and preferred stock is that the dividend is fixed in the case of preferred stocks.

Answer and Explanation:

.

Given -

  • Dividend (Do) = $1.70
  • Share Price (Po) = $18.28

The formula to calculate the rate of return is as follows -

  • Rate of Return = {eq}Do / Po = 1.70 / 18.28 {/eq}
  • Rate of Return = {eq}9.30 {/eq}

Learn more about this topic:

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What is Preferred Stock? - Definition, Types & Advantages

from Corporate Finance: Help & Review

Chapter 8 / Lesson 8
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