Question

Your firm has preferred stock outstanding that pays a current dividend of $3.00 per year and has a current price of $39.50. You anticipate that the economy will grow steadily at a rate of 3.00% per year for the foreseeable future. What is the market required rate of return on your firm's preferred stock?

Answer 1

Answer:

7.59%

Explanation:

the dividend is a perpetuality, so the formula for determining the price is :

Price = dividend / required rate of return

$39.50 = $3 / required rate of return

required rate of return = $3 / $39.50 = 0.0759 = 7.59%