Sampson Supply Inc. has outstanding borrowings that include preferred

Sampson Supply Inc. has outstanding borrowings that include preferred stock.

One of these borrowings is (nonconvertible) preferred stock (cumulative) with a par value of $150 and an annual dividend rate of 4.50%. This preferred stock is currently selling for $175 per share. What is the yield or return on this nonconvertible preferred stock?
What will be an ideal response?

 

 

ANSWER

Answer: We first determine the annual dividend by multiplying the dividend rate against the par value: $150 × 0.045 = $6.75. Now, dividing this $6.75 annual dividend by the current price of $175.00, we get 0.03857, or about 3.86%.

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