Your firm has preferred stock outstanding that pays a current dividend of $3.00 per year and has a current price of $39.50.You anticipate that the economy will grow steadily at a rate of 3.00% per year for the foreseeable future.What is the market required rate of return on your firm's preferred stock?

Question

Quizplus · Accepted Answer

Preferred stock dividends are typically fixed and do not grow, so the growth rate of the economy does not affect the dividend. The required rate of return is calculated as the dividend divided by the current price: $3.00 / $39.50 = 7.59%.

Your Firm Has Preferred Stock Outstanding That Pays a Current