Marme Inc. has preferred stock selling for 137 percent of par that pays an 11 percent annual dividend. What would be Marme's component cost of preferred stock?

Question

Quizplus · Accepted Answer

The component cost of preferred stock is calculated as the annual dividend divided by the current price. Here, the annual dividend is 11 percent of par, and the stock is selling for 137 percent of par. Thus, the cost is $ \frac{11}{137} \times 100 = 8.03\% $.

Marme Inc Has Preferred Stock Selling for 137 Percent of Par