Your firm has preferred stock outstanding that pays a current dividend of $2.00 per year and has a current price of $21.50.Currently,preferred stock makes up approximately 15% of your firm's long-term financing.What is the market required rate of return on your firm's preferred stock?

Question

Quizplus · Accepted Answer

Dividend yield on preferred stock = Annual dividend / Market price per share
= $2.00 / $21.50 = 0.093 or 9.3%
Since preferred stock makes up 15% of the firm's long-term financing, the market required rate of return on preferred stock would also be 9.3% (as per the current market price and dividend payout). Therefore, the correct answer is option C (9.30%).

Your Firm Has Preferred Stock Outstanding That Pays a Current