Rose has preferred stock selling for 99 percent of par that pays a 9 percent annual coupon. What would be Rose's component cost of preferred stock?
A) 4.55 percent
B) 8.91 percent
C) 9.00 percent
D) 9.09 percent

Question

Quizplus · Accepted Answer

The component cost of preferred stock is calculated as the annual dividend divided by the current price. Here, the annual dividend is 9% of par value. Since the stock sells for 99% of par, the cost is 9 / 0.99 = 9.09%.

Rose Has Preferred Stock Selling for 99 Percent of Par