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10. Holdup Bank has an issue of preferred stock with a $3.75 stated dividend that just...

10. Holdup Bank has an issue of preferred stock with a $3.75 stated dividend that just sold for $87 per share. What is the bank’s cost of preferred stock?

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Answer #1

Preferred stock price = annual dividend/ required return

87 = 3.75/ required rate

Required rate = 3.75/ 87

                        = 0.0431 or 4.31%                                                      

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