Question

Cost of preferred stock.  Kyle is raising funds for his company by selling preferred stock. The preferred stock has a par value of ​$118 and a dividend rate of 6.5%. The stock is selling for ​$91.15 in the market. What is the cost of preferred stock for​ Kyle?

Answer 1

Information provided:

Par value= $118

Dividend rate= 6.5%

Preferred dividend= 0.065*$118= $7.67

Current price= $91.15

The cost of preferred stock is calculated using the below formula:

Kps=Dps/P

where:

Kps= Cost of preferred stock

Dps=preferred dividend

P= Market price of preferred stock

Kps= $7.67/ $91.15

       = 0.0841*100

        = 8.41%.

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