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IVY has preferred stock selling for 97.6 percent of par that pays a 7.4 percent annual...

IVY has preferred stock selling for 97.6 percent of par that pays a 7.4 percent annual coupon. What would be IVY's component cost of preferred stock?

7.58%

7.22%

17.76%

7.40%

Solutions

Expert Solution

Annual coupon = (1000* 7.4%) = $74

Current price = (1000* 97.6%) = $976

Hence component cost of preferred stock = Annual coupon/ Current price

                                                                   = (74/ 976)

                                                                     = 0.0758 or 7.58%

So correct answer is A

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jeff jeffy answered 1 year ago
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