Connor Publishing's preferred stock pays a dividend of $1

Finance Oct 31, 2020

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?

Expert Solution

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%

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