Respuesta :
38.00% is the expected return of this preferred stock.
How do you calculate preferred stock expected return?
- Subtract the price you paid for the shares from the current price to calculate the raw return on your initial investment in preferred stock. Then, for each share purchased, add the dividends received.
- Finally, multiply the result by the number of shares purchased to calculate the raw return.
- It is calculated by dividing the annual interest or dividend payment amount by the security's current market price and multiplying the result by 100.
- Assume a company issues 7% preferred stock with a $1,000 par value. As a result, the investor would receive a $70 annual dividend or $17.50 quarterly dividend. This preferred stock will typically trade around its par value, behaving more like a bond.
- For example, a model may state that an investment has a 10% chance of returning 100% and a 90% chance of returning 50%. The expected return is calculated as 0.1 (1) + 0.9 (0.5) = 0.55 = 55%.
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