Preferred stock with a $100 par value and a 5 percent dividend is currently trading on the market at $90 per share. What is the amount of the dividend the holder is entitled to receive each year on each share?
A) $90 (i.e., 90 percent of $100)
B) 5 percent of $90
C) 5 percent of total corporate profits divided by the number of shares outstanding
D) $5
E) None of these

Question

Quizplus · Accepted Answer

The dividend the holder is entitled to receive each year on each share is the percentage dividend rate multiplied by the par value of the stock, which in this case is 5% of $100 = $5. Therefore, the answer is D.

Preferred Stock with a $100 Par Value and a 5