Question

"Farley Inc. has perpetual preferred stock outstanding that sells for $36 a share and pays a dividend of $2.50 at the end of each year. What is the required rate of return? Round your answer to two decimal places."

Answer 1

Answer:

Required rate of return = 6.944% (Approx)

Explanation:

Given:

Sale price = $36

Dividend = $2.50

Find:

Required rate of return

Computation:

Required rate of return = [Dividend/Sale price]100

Required rate of return = [2.50/36]100

Required rate of return = 6.944% (Approx)