Upstate Bank has an issue of preferred stock with a $4.80 stated dividend that just sold for $86 a share. What is the bank's cost of preferred stock?

Question

Quizplus · Accepted Answer

To calculate the cost of preferred stock, we need to use the following formula:

Cost of preferred stock = Dividend / Net issue price

In this case, the dividend is $4.80 per share, and the net issue price is $86 per share. Therefore:

Cost of preferred stock = $4.80 / $86 = 0.0558 or 5.58%

Therefore, the best choice is B.

Upstate Bank Has an Issue of Preferred Stock with a $4.80