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Preferred Stock Returns: Bruner Aeronautics

Bruner Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2, and its current price is $80.

a. What is its nominal annual rate of return?
b. What is its effective annual rate of return?

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Solution Summary

The solution contains a step-by-step calculation of the nominal and effective annual rate of return on perpetual preferred stock outstanding and how effective annual rate of return (EFF%) impacts the nominal annual rate of return.