A share of preferred stock pays a quarterly dividend of $1.00. If the price of the...

A share of preferred stock pays a quarterly dividend of $1.00. If the price of the stock is $50, what is the effective annual (not nominal) rate of return on the preferred stock?

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Expert Solution

Ans 8.24%

Nominal Rate of return = Dividend / Price of stock = ($1 * 4 ) / 50

= $ 4 /50

= 8.00%

Effective annual return = 8.24%

EAR =    ( 1 + r )^n - 1

   Compounded Quarterly

EAR=    ( 1 + 8%/4)^4 - 1
EAR=    8.24%

jeff jeffy answered 11 months ago

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