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25 August, 11:02

A company issued common stock and preferred stock. Projected growth rate of the common stock is 5%. The current quarterly dividend on preferred stock is $1.60. The current market price of the preferred stock is $80 and the current market price of the common stock is $95. What is the expected rate of return on the preferred stock?

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  1. 25 August, 13:17
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    8%

    Explanation:

    If the current quarterly dividend on preferred stock = $1.60, that means that the current yearly dividend = $1.60 x 4 quarters = $6.40

    Since the yearly dividend = $6.40 and the current market price of preferred stock is $80, its expected rate of return = $6.40 / $80 = 8%
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