Question

Yankee Athletic Club has preferred stock with a par value of ​$80 and an annual 8​% cumulative dividend. Given the following prices for the preferred​ stock, what is each investor seeking for his or her​ return? a. Alex is willing to pay ​$35. b. Derek is willing to pay ​$30. c. Marcia is willing to pay ​$20. d. Johnny is willing to pay ​$10. a. If Alex is willing to pay ​$35 for the preferred​ stock, what rate of return is he​ seeking?

Answer 1

Answer:

Answer is explained below.

Explanation:

Annual  dividend = (80*6%) =$4.8

1.Required return=annual dividend/current price   =(4.8/40)=12%

2. Required return=(4.8/25)=19.2%

3. Required return=(4.8/20)=24%

4. Required return=(4.8/10)=48%