What is the cost of a preferred stock with a $100 par value that pays a $9.60 dividend per year? The security has a flotation cost of $3.37 and will be retired at its par value in 20 years.

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Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the net proceeds from the sale of the stock. The net proceeds are the par value minus the flotation cost, which is $100 - $3.37 = $96.63. The cost is $9.60 / $96.63 = 9.94%, which rounds to 10.0%.

What Is the Cost of a Preferred Stock with a $100