Davis Gas & Electric issued preferred stock in 1985 that had a par value of $50. The stock pays a dividend of 7.875%. Assume that shares are currently selling for $62.50. What is the preferred stockholder's expected rate of return? Round to the nearest 0.01%.

Question

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The expected rate of return for preferred stock is calculated by dividing the annual dividend by the current price. The annual dividend is 7.875% of the $50 par value, which is $3.9375. Dividing $3.9375 by the current price of $62.50 gives approximately 6.30%.

Davis Gas & Electric Issued Preferred Stock in 1985 That