YMCA Company’s preferred stock pays a dividend of $12 per year. If the stock sells for...
YMCA Company’s preferred stock pays a dividend of $12 per year. If the stock sells for $40 and the next dividend will be paid in one year, what return would you require for investing in this company?
Homework Answers
Preferred dividend remains constant in perpetuity.
Preferred dividend this year and next year = $12
Current price = $40
Required return of preferred stock = Preferred dividend/Market price of stock
=12/40
=0.3 or 30%
So you would require 30% return for investing in this company
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