Ace Corporation preferred stock pays an 8% dividend on a par value of $50 and is currently selling at $47.50. What is required rate of return on the stock?

Name: Ace Corporation preferred stock pays an 8% dividend on a par value of $50 and is currently selling at $47.50. What is required rate of return on the stock?
Brand: Quizplus
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Question

Quizplus · Accepted Answer

The required rate of return is calculated as the dividend divided by the current price. The dividend is 8% of $50, which is $4. The required rate of return is $4 / $47.50 = 0.0842 or 8.4%.

Ace Corporation Preferred Stock Pays an 8% Dividend on a Par