Answered: Calculate the nominal rate of return on…

Calculate the nominal rate of return on a perpetual preferred stock with a par value of $200, a dividend of 9% of par value, and a current market price of $100.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Calculate the nominal rate of return on a perpetual preferred stock with a par value of $200, a dividend of 9% of par value, and a current market price of $100.

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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