Question

Wallace Container Company issued $100 par value preferred stock 12 years ago. The stock provided a 9 percent yield at the time of issue. The preferred stock is now selling for $72. What is the current yield or cost of the preferred stock

Answer 1

Answer:

12.5%

Explanation:

Calculation to determine the current yield or cost of the preferred stock

First step is to determine the Preference dividend.

Dividend yield= Preference dividend/Market price

9%= Preference dividend/100

Preference dividend=9%*100

Preference dividend=$9

Now let determine the cost of the preferred stock

Using this formula

Cost of preference stock= (Preference dividend/Current market price)×100%

Let plug in the formula

Cost of preference stock=($9/72)×100%

Cost of preference stock=12.5%

Therefore the current yield or cost of the preferred stock is 12.5%