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What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 9% of par, and a current market price of (a) $68, (b) $81, (c) $117, and (d) $134? Round your answers to two decimal places. a. b. C. d.

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Answer:

a.  D = 9% x $100 = $9

Par value =  $100

Po = $68

Kp = D/Po

Kp = $9/$68

Kp = 0.1324  = 13.24%

b.  Kp = $9/$81

Kp = 0.1111 = 11.11%

c. Kp = $9/$117

Kp = 0.0769 = 7.69%

d. Kp = $9/$134

 Kp = 0.0672  = 6.72%

Explanation: In this question, we need to determine the fixed dividend paid by multiplying the dividend rate (9%) by the par value($100). Then, we will divide the fixed dividend by the current market price.