Question

Moraine, Inc., has an issue of preferred stock outstanding that pays a $5.35 dividend every year in perpetuity. If this issue currently sells for $93 per share, what is the required return

Answer 1

Answer:

5.75%

Explanation:

the required rate of return for a preferred stock can be calculated by dividing the preferred dividend by the current market price:

• required rate of return = $5.35 / $93 = 5.75%

The preferred dividend is fixed, but the market price varies depending on the required rate of return.