Question

Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.60 dividend every year, in perpetuity.

If this issue currently sells for $80.40 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return             %

Answer 1

Required return = Dividend / Share price

Required return = $5.60 / $80.40 = 0.0697 = 6.96%

The required return is 6.96%