A share of preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is your nominal (not effective) annual rate of return?
A) 10%
B) 8%
C) 6%
D) 12%
E) 14%

Question

Quizplus · Accepted Answer

The nominal annual rate of return is calculated by taking the quarterly dividend ($0.50) and multiplying it by 4 (since there are four quarters in a year), resulting in $2.00 per year. Dividing the annual dividend ($2.00) by the price you are willing to pay ($20.00) gives a nominal annual rate of return of 10%.

A Share of Preferred Stock Pays a Dividend of $0