Question

Morris Companies has an issue of preferred stock outstanding that pays a $7.75 dividend every year in perpetuity. What is the required return if this issue currently sells for $68.19 per share?
A. 10.95 percent
B. 11.37 percent
C. 11.86 percent
D. 11.72 percent
E. 11.80 percent

Answer 1

Answer:

Option (B) is correct.

Explanation:

Given that,

Issued preferred stock outstanding that pays dividend per year = $7.75

Current selling price = $68.19 per share

Required return = (Annual dividend ÷ Current price)  × 100

                            = ($7.75 ÷ $68.19) × 100

                            = 11.37% (Approx)

Therefore, the required return is 11.37% if this issue currently sells for $68.19 per share.