Yankee Athletic Club has preferred stock with a par value of $80 and an annual 8 % cumulative dividend. Given the following prices for the preferred stock, what is each investor seeking for his or her return? a. Alex is willing to pay $35. b. Derek is willing to pay $30. c. Marcia is willing to pay $20. d. Johnny is willing to pay $10. a. If Alex is willing to pay $35 for the preferred stock, what rate of return is he seeking?

Question

Business

Korbin Sherman

30 April, 19:38

Yankee Athletic Club has preferred stock with a par value of $80 and an annual 8 % cumulative dividend. Given the following prices for the preferred stock, what is each investor seeking for his or her return? a. Alex is willing to pay $35. b. Derek is willing to pay $30. c. Marcia is willing to pay $20. d. Johnny is willing to pay $10. a. If Alex is willing to pay $35 for the preferred stock, what rate of return is he seeking?

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Answers (1)

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Eddie · Answer 1

Answer is explained below.

Explanation:

Annual dividend = (80*6%) = $4.8

1. Required return=annual dividend/current price = (4.8/40) = 12%

2. Required return = (4.8/25) = 19.2%

3. Required return = (4.8/20) = 24%

4. Required return = (4.8/10) = 48%