You just purchased preferred shares in Unitech for $45.71. Unitech pays annual dividends of $0.64. Your required return on investment will be 1.4%
Preferred stock, is stocks of an organization's inventory with dividends that can be paid out to shareholders before common stock dividends are issued. If the organization enters bankruptcy, desired stockholders are entitled to be paid from business enterprise belongings before commonplace stockholders.
The dividends fee for preferred stocks is usually constant. there's no increase in the dividends. As there's no increase, we are able to value a favored inventory as a constant increase inventory. The growth rate is taken as 0 as there is no growth in dividends. To calculate the required return on investment using the formula:
Rate of Return = Dividend payment / Price of preferred stock + growth rate
As the growth rate is zero
Rate of Return = Dividend payment / Price of preferred stock
Given
Dividend payment = $0.64
Price of preferred stock = $45.71
Rate of Return = 0.64 / 45.71 = 0.14 = 1.4%
Therefore the required return on investment is 1.4%
Return is a profit on an investment. It comprises any change in the price of the funding, and/or coin flows that the investor gets from that investment, consisting of hobby bills, coupons, coins dividends, stock dividends, or the payoff from a by-product or established product
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