Question

(Preferred stockholder expected return) You own 100 shares of Dalton Resources preferred stock, which currently sells for $46.06 per share and pays annual dividene of $3.25 per share. a. What is your expected return? b. If you require a return of7 percent, given the current price, should you sell or buy more stock? a. Your expected return is percent (Round to two decimal places) b. If you require a return of 7 percent, the value of the stock for you is S (Round to the nearest cent) Because the expected rate of return is your required rate of return or the intrinsic value, or because the current market price is $46.43, the Daton Resources preferred stock is and you should the stock. (Select from the drop-down menus.)

Answer 1

expected return of preferred share

= annual dividend/price of stock

a)

expected return = 3.25/46.06

= 7.06%

b)

value of stock = 3.25/0.07

= 46.43