Chocolate Coins Bank issued shares of preferred stock with a $9 stated dividend. This morning these shares were selling for $89 each. Calculate the bank's cost of preferred stock.
The cost of preferred stock is calculated using the following formula:
= Annual Dividend paid on Preferred Stock / Current Market Price of Preferred Stock
As per the Information given in the question we have
Annual Dividend paid on Preferred Stock = $ 9 ; Current market Price of Preferred Stock = $ 89
Applying the above values in the formula we have :
The cost of preferred stock = ( $ 9 / $ 89 ) = 10.11 %
Thus, the cost of preferred stock is the second option = 10.11 %
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