Question

Three corporations (X, Y, Z) have preferred stock. The current stock price per share and dividend per share of the preferred stock of X, Y, and Z are shown below.

X: stock price = $50, dividend per share = $3

Y: stock price = $60, dividend per share = $4

Z: stock price = $80, dividend per share = $4

If you calculate the cost of the preferred cost stock (R_P) for each and list these in order from HIGHEST R_P to LOWEST R_P, the correct order is _____.

Answer 1

Formula to calculate Cost of the preferred stock (RP)

                        Cost of the preferred stock (RP)= (dividend)/P0 Price

Thus for X -----> Cost of the preferred stock (RP)= 3/50 = 6%

Y----->          Cost the preferred stock (RP)= 4/60 = 6.66%

Z -------->     Cost the preferred stock (RP)= 4/80 = 5%

   Thus highest RP to Lowest Rp = First will be y , Second will be X , third will be Z

Therefore correct order is Y,X,Z