Question

ABC Corporation, has an issue of preferred stock outstanding that pays a $2.50 dividend every year in perpetuity. This stock issue currently sells for $75 per share. What is the required return for this preferred stock?

Answer 1

Answer:

the required return on the preferred stock is 3.33%

Explanation:

The computation of the required return on the preferred stock is shown below:

= Dividend ÷ Selling price per share

= $2.50 ÷ $75

= 3.33%

Hence, the required return on the preferred stock is 3.33%

We simply applied the above formula