Question

​(Preferred stock expected return​) You are planning to purchase 150 shares of preferred stock and must choose between stock in the Jackson Corporation and stock in the Fields Corporation. Your required rate of return is 9.07 percent. If the stock in Jackson pays a dividend of ​$ 1.75 and is selling for ​$ 19 and the stock in Fields pays a dividend of ​$ 2.50 and is selling for ​$ 28​, which stock should you​ choose? What is the expected return of stock in Jackson​ Corporation?

Answer 1

Can you please upvote? Thank You :-)The expected return from the Jackson Corporation prefererd stock = Dividend/Price

The expected return from the Jackson Corporation prefererd stock = 1.75/19

The expected return from the Jackson Corporation prefererd stock = 0.09210526316

The expected return from the Jackson Corporation prefererd stock = 9.21%

The expected return from the Fields Corporation prefererd stock = Dividend/Price

The expected return from the Fields Corporation prefererd stock = 2.50/28

The expected return from the Fields Corporation prefererd stock = 0.08928571429

The expected return from the Fields Corporation prefererd stock = 8.93%

We should choose Jackson Corporation prefererd stock because its expected return of 9.21% is greater than our required return of 9.07%