Preference shares of Dunmovin pay a dividend of $4 each year and trade at a price of $30. What is the cost of preference share capital for Dunmovin?

Question

Quizplus · Accepted Answer

To find the cost of preference share capital, we need to calculate the dividend yield. Dividend yield is calculated by dividing the annual dividend by the market price of the share.

Dividend yield = Annual dividend / Market price 
= $4 / $30 
= 0.1333 or 13.33%

Therefore, the cost of preference share capital for Dunmovin is 13.33%, which is option C.

Preference Shares of Dunmovin Pay a Dividend of $4 Each