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smiling elephant, inc., has an issue of preferred stock outstanding that pays a $3.45 dividend every year, in perpetuity. if this issue currently sells for $77.32 per share, what is the required return?

Respuesta :

varshamittal029

The required return rate is 4.46%.

Preferred stock is a specific kind of stock that does not have voting rights but pays dividends according to a predetermined timetable. Preferred stock is purchased by investors to boost their income and to benefit from specific tax advantages.

The formula used for pricing a preferred share is:

  • Price per share = Dividend per share / Required return rate

Here, the Price per share is given to be = $77.32 and the Dividend per share is given to be = $3.45

Putting the values in the above formula, we get,

  • 77.32 = 3.45/Required return rate

Required return rate = 3.45/77.32

Required return rate = 0.0446 * 100

                                     = 4.46%

Therefore, the required return rate is, 4.46%

Learn more about Preferred Stocks here: https://brainly.com/question/18068539

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