A share of preferred stock pays a quarterly dividend of $2.50. If the price of this preferred stock is currently $50, what is the nominal annual rate of return?
A) 12%
B) 18%
C) 20%
D) 23%
E) 28%

Question

Quizplus · Accepted Answer

To calculate the nominal annual rate of return, we need to first determine the annual dividend payment. Since the stock pays a quarterly dividend of $2.50, the annual dividend payment would be:

$2.50 x 4 = $10

To determine the nominal annual rate of return, we divide the annual dividend payment by the current price of the stock and multiply by 100:

($10 / $50) x 100 = 20%

Therefore, the nominal annual rate of return is 20%. Answer choice C is the correct answer.

A Share of Preferred Stock Pays a Quarterly Dividend of $2.50