(Preferred stockholder expected return) You own 200 shares of Shapard Resources preferred stock, which currently sells...

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Question

(Preferred stockholder expected return) You own 200 shares of Shapard Resources preferred stock, which currently sells...

(Preferred stockholder expected return)

You own 200 shares of Shapard Resources preferred stock, which currently sells for

$38 per share and pays annual dividends of$4.50 per share.

a. What is your expected return?

b. If you require a return of 9 percent, given the current price, should you sell or buy more stock?

business finance

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Answer 1

Answer #1

a. Expected return = Annual Dividend / Market Price * 100 = $ 4.50 / $ 38.00 * 100 = 11.84 %

b. Expected return : 11.84 %

Required return : 9 %

As expected return of 11.84 % is more than the required return of 9 %, it is advisable to buy more stocks at the current selling price of $ 38.

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Answer 2

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