Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $3 at the end of each year. The preferred sells for $35 a share. What is the stock's required rate of return? (Assume the market is in equilibrium with the required return equal to the expected return.) Round the answer to two decimal places.

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Business

Kai Oliver

5 December, 17:13

Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $3 at the end of each year. The preferred sells for $35 a share. What is the stock's required rate of return? (Assume the market is in equilibrium with the required return equal to the expected return.) Round the answer to two decimal places.

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Bart · Answer 1

The stock's required rate of return is 8.57%

Explanation:

For computing the required rate of return for the stock, we need to apply the formula which is shown below:

The Required rate of return = (Dividend : price) * 100

= ($3 : $35 per share) * 100

= 8.57%

The find out the required rate of return, the dividend should be proportional to the price.