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slega [8]
3 years ago
10

Cost of Preferred Stock Marme, Inc., has preferred stock selling for 96 percent of par that pays an 11 percent annual coupon. Wh

at would be Marme’s component cost of preferred stock?
Business
1 answer:
nataly862011 [7]3 years ago
7 0

Answer:

Component cost of preferred stock is 11.4583 %

Explanation:

Given Data:

Preferred stock selling=96 percent of par.

Annual Coupon =11 percent

Required:

What would be Marme’s component cost of preferred stock?

Solution:

The formula we are going to use is:

i_{stock}=\frac{D_o}{P_o}

Where:

D_o is  11 percent annual coupon

P_o preferred stock selling for 96 percent of par

If we convert the above percentage to dollar using the scale $1=1% then:

D_o=$11

P_o=$96

i_{stock}=\frac{\$11}{\$96}\\ i_{stock}=0.114583

Component cost of preferred stock is 11.4583 %

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