Preferred Stock Yield-to-Maturity: 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%)

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) for preferred stock can be calculated using the formula for the yield of a bond, considering the quarterly dividend and the difference between the purchase price and the par value over the time to maturity. The calculation involves solving for the rate in the present value equation of the cash flows, which results in approximately 6.72%.

Preferred Stock Yield-To-Maturity: Durango Water Works Has an Outstanding Issue