Question

1. A company has issued preferred stocks to finance its activities. One share of preferred stock is currently sold for $100 and is paying $10 dividend each year. The payment is delivered semiannually. What is the cost of preferred dividend to the firm?
   1. 10%
   2. 20%
   3. 5%
   4. 2.5%
   5. 40%

Answer 1

Cost of preferred stock (Rp)	Annual dividend÷Stock price
Here,
Annual dividend	$                                              10	=5*2
Preferred stock price	$                                            100
Cost of preferred stock (Rp)	10.00%
	10÷100