Question

Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 4.30 percent that sells for $91.18 per share. If the par value is $100, what is the cost of the company's preferred stock

Answer 1

Answer: 4.72%

Explanation:

Given: Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 4.30 percent

i.e. dividend = 4.30%

Price of a share = $91.18

Since, the cost of the company's preferred stock = (dividend) ÷ (Price of a share ) x 100

= (4.3)  ÷ ($91.18) x 100

= 0.0472 x 100

= 4.72%

Hence, the cost of the company's preferred stock = 4.72%