Question

Holdup Bank has an issue of preferred stock with a $6.25 stated dividend that just sold for $99 per share. What is the bank’s cost of preferred stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer #1

Value of preferred stock = annual dividend/ cost of preferred stock

99 = 6.25/ cost of preferred stock

Cost of preferred stock = 6.25/ 99

= 0.0631 or 6.31%

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