Homework Answers
Answer
It is mentioned in the question the the preferred stock that is
issued at par value of $100 is also trading in the market at $100.
In such a case, where the Market price of a preferred stock is
equal to its par value, the YTM of such stock is the rate of
dividend itself.
The reason is that when a company pays an investors (i.e rate of dividend) exact what an investors expects (i.e the YTM), the stock trades at par.
Therefore,
YTM = RATE OF DIVIDEND
= (dividend/par value)*100
=( 6/100 ) * 100
= 6%
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