Pluto, Inc., has an issue of preferred stock outstanding that pays a $4.50 dividend every year, in perpetuity. If this issue currently sells for $82.30 per share, what is the required return?

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Quizplus · Accepted Answer

The required return is the dividend yield, which is the annual dividend divided by the current market price. In this case, the annual dividend is $4.50 and the current market price is $82.30, so the required return is $4.50/$82.30 = 5.47%.