MNO preferred stock pays a dividend of $2 per year and has a price of $20. If MNO's tax rate is 21 percent, the required rate of

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2 years ago

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return on its preferred stock is found by which formula

1 answer:

soldi70 [24.7K] · Answer 1 · 2023-03-03T07:18:56+03:00

The required rate of return on its preferred stock is found by using PW = D/R.

<u>Given Information</u>

Dividend per year = $2

Stock price = $20

Tax rate = 21%

Required rate of return (R) = ?

The formula for use to derive the Required rate of return includes PV = D/R, where PW means Present worth, D = Dividend per year and R means Required rate of return.

PV = D/R

$20 = $2 / R

$20 * R = $2

R = $2 / $20

R = 0.1

R = 10%

Therefore,, the required rate of return on the preferred stock is 10%.

In conclusion, the required rate of return on its preferred stock is found by using PW = D/R.

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