Caldwell Corp. has outstanding borrowings. One of these borrowings is nonconvertible preferred stock (cumulative) with a par value of $75 and an annual dividend rate of 8.25%
This preferred stock is currently selling for $56.46 per share. What is the yield or return (r) on this preferred stock?
A) 10.395%
B) 10.432%
C) 10.959%
D) 10.623%
Answer: C
Explanation: C) We first determine the annual dividend by multiplying the dividend rate against the par value: $75 × 0.0825 = $6.1875. Now, using the equation r = and dividing the $6.1875 annual dividend by the current price of $56.46, we get r = 0.109591, or about 10.959%.
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