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Homework answers / question archive / Connor Publishing's preferred stock pays a dividend of $1
Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $75.00 per share. What is its effective annual (not nominal) rate of return?
Computation of the effective annual rate of return (EAR):-
Cost of preferred stock = Annual dividend / Selling price
= $1 * 4 / $75
= 5.33%
EAR = (1+rate/n)^n-1
= (1+5.33%/4)^4-1
= 1.0544 - 1
= 5.44%
