Question

Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 4.20 percent that sells for $90.86 per share. If the par value is $100, what is the cost of the company's preferred stock?
A) 6.37%
B) 6.15%
C) 6.91%
D) 6.20%
E) 6.11%

Answer 1

Answer:

4.62%

Explanation:

Bethesda had an issue with preferred stock outstanding with a coupon rate of 4.20 %

It is sold at $90.86 per share

The par value is $100

Therefore the company's preferred stock can be calculated as follows

= 4.20/100 × 100 / 90.86/100 ×100

= 4.20/90.86

= 0.0462 × 100

= 4.62%