Fee Founders has perpetual preferred stock outstanding that sells for $191 a share and pays a dividend of $5 at the end of each year

Finance Dec 19, 2020

Fee Founders has perpetual preferred stock outstanding that sells for $191 a share and pays a dividend of $5 at the end of each year. What is the required rate of return?

Expert Solution

According to the question, the following information about Fee Founders preferred stock is given -

Current market price of perpetual preferred stock = $191

Dividend paid on perpetual preferred stock at the end of the year = $5

As we know that, the Required rate of return on perpetual preferred stock = (Dividend at the end of the year ÷ Current price of the stock) × 100

Therefore, the Required rate of return on Fee Founders outstanding perpetual preferred stock will be -

Required rate of return = ( $5 ÷ $191 ) × 100

= 2.62%

Thus, the Required rtae of return on Fee Founders outstanding perpetual preferred share will be 2.62% (approx).

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