Durango Water Works has an outstanding issue of preferred stock that has a par (maturity value) of $75.00. The stock, which pays a quarterly dividend of $1.10, will be retired by the firm in 20 years. If the preferred stock is currently selling for $68.00, what is the preferred stock's yield-to-maturity? (Round off to the nearest 0.01%)
A) 6.72%
B) 5.64%
C) 4.28%
D) 7.73%

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) can be calculated using the formula for the yield of a preferred stock, considering the quarterly dividend, current price, and par value at maturity. The calculation involves solving for the rate that equates the present value of future cash flows (dividends and par value) to the current price. The correct YTM is approximately 6.72%.

Durango Water Works Has an Outstanding Issue of Preferred Stock