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Rek Corp.’s preferred stock is selling for $53.83. If the company pays $5.03 annual dividends, what is the expected rate of return on its stock? Answer in percent format. Round to the nearest hundredth percent. Do not include the percent sign in your answer. (i.e. If your answer were 1.23%, then type 1.23 without a % sign)

Respuesta :

Answer:

Expected Rate of Return on Stock = 9.34

Explanation:

The question is to determine the expected rate of return on Rek Corp's stock.

First, the known information:

1. The Preferred Stock sells for $53.83

2. The Annual Dividend paid out per Rek Corp on the Preferred Stock = $5.03

Based on these given data,

The formula for Expected rate of return on Stock

= The Annual Dividends Paid out by Rek Corp/ The Preferred Stock's Selling Price.

Expected Rate of Return on Stock = $5.03/ $53.83 x100

Expected Rate of Return on Stock = 9.34

Answer:

The answer is 9.34 without the percentage sign

Explanation:

Expected rate of return on the stock=annual dividends per share/share price

annual dividends per preferred stock is $5.03'

preferred share sells for $53.83 per share

expected return on the preferred stock=$5.03/$53.83

                                                                 =0.093442318

This implies a rate of return of 9.34% yearly, which could be interpreted to mean if the annual dividends continue at the same percentage, the investment in preferred share would repay itself over an average of ten years.

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