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 simple annual rate of return?
A) 12%
B) 18%
C) 20%
D) 23%
E) 28%

Question

Quizplus · Accepted Answer

To calculate the simple annual rate of return, we need to find out two things:

1) Annual dividend paid by the preferred stock

Annual dividend = Quarterly dividend x 4 
Annual dividend = $2.50 x 4 = $10

2) Percentage return on investment

Percentage return on investment = (Annual dividend / Stock price) x 100 
Percentage return on investment = ($10 / $50) x 100 = 20%

Therefore, the simple annual rate of return is 20%, which is option C.

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