Puckett Corp. has just issued nonconvertible preferred stock (cumulati

Puckett Corp. has just issued nonconvertible preferred stock (cumulative) with a par value of $50 and an annual dividend rate of 7.25%. The preferred stock is currently selling for $38.75 per share. What is the yield or return (r) on this preferred stock?

A) 9.341%
B) 9.345%
C) 9.351%
D) 9.355%

ANSWER

Answer: D
Explanation: D) We first determine the annual dividend by multiplying the par value by the dividend rate. We have: $50 × 0.0725 = $3.625. Now, using the equation r = and dividing the $3.625 annual dividend by the current price of $38.75, we have: r = 0.093548, or about 9.355%.