Question

Bedeker, Inc., has an issue of preferred stock outstanding that pays a $4.75 dividend every year in perpetuity. If this issue currently sells for $98 per share, what is the required return

Answer 1

Answer:

4.85%

Explanation:

The computation of the required return is shown below:

Data provided in the question

Dividend for preference stock = $4.75

And, the current selling price of the stock  is $98

So, the required return is

= Dividend for preference stock ÷  current selling price of the stock

= $4.75 ÷ $98

= 4.85%

We simply applied the above formula to determine the required return