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What is the required return on the preferred shares of Yellow Inc? The price of the...

  1. What is the required return on the preferred shares of Yellow Inc? The price of the TH preferred share is $75, the par value of the share is $85 and the dividend rate is 11%.

a. 13.2

b. 9.7%

c. 11%

d. 12.5%

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Answer #1

Required return of preferred stock is calculated using the below formula:

= Preferred dividend per share/ Market price of preferred shares

Preferred dividend= 0.11*$85

                                     = $9.35

Required return of preferred stock:

= $9.35/ $75

= 0.1247*100

= 12.47%    12.5%.

Hence, the answer isoption d.

In case of any query, kindly comment on the solution.

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