QuestionJuly 17, 2025

Jokoy Inc. has an issue of preferred stock outstanding that pays a dividend of 5 annually in perpetuity. If this issue currently sells for 118 per share, calculate the required rate of return on the investment (Enter percentages as decimals and round to 4 decimals)

Jokoy Inc. has an issue of preferred stock outstanding that pays a dividend of 5 annually in perpetuity. If this issue currently sells for 118 per share, calculate the required rate of return on the investment (Enter percentages as decimals and round to 4 decimals)
Jokoy Inc. has an issue of preferred stock outstanding that pays a dividend of 5 annually in
perpetuity. If this issue currently sells for 118 per share, calculate the required rate of return
on the investment (Enter percentages as decimals and round to 4 decimals)

Solution
4.7(228 votes)

Answer

0.0424 Explanation 1. Identify the formula for required rate of return The required rate of return for preferred stock is calculated using the formula: **r = \frac{D}{P}**, where D is the annual dividend and P is the price per share. 2. Substitute values into the formula Given D = 5 and P = 118, substitute these values into the formula: r = \frac{5}{118}. 3. Calculate the required rate of return Perform the division to find r: r = \frac{5}{118} \approx 0.0424.

Explanation

1. Identify the formula for required rate of return<br /> The required rate of return for preferred stock is calculated using the formula: **$r = \frac{D}{P}$**, where $D$ is the annual dividend and $P$ is the price per share.<br /><br />2. Substitute values into the formula<br /> Given $D = 5$ and $P = 118$, substitute these values into the formula: $r = \frac{5}{118}$.<br /><br />3. Calculate the required rate of return<br /> Perform the division to find $r$: $r = \frac{5}{118} \approx 0.0424$.
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