CourseLover

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    Devry University
    Sep-2004 - Aug-2010

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Category > Accounting Posted 08 Dec 2017 My Price 10.00

effective annual rate of return

Preferred stock pays a quarterly dividend of $2 per share. Next dividend comes in exactly one-fourth of a year. If the price of the stock is $80, what is the effective annual rate of return that the stock offers investors? https://www.coursehero.com/file/p56ue7o/5-1-Argaiv-Towers-has-outstanding-an-issue-of-preferred-stock-with-a-par-value/ This person came up with 10.38%. I'm coming up with 0.025% (2.5%).

 

The formula in my book says, to get the effective annual rate is (1 + required return rate / 4)^4 - 1.

 

The required return rate is 0.025. Is this the right formula for this problem? Is this person correct that it was 10.38%? How?

Answers

CourseLover
(12)
Status NEW Posted 08 Dec 2017 04:12 PM My Price 10.00

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