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# Return on Preferred Stock

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Preferred Products has issued preferred stock with an \$8 annual dividend that will be paid in perpetuity.
a. If the discount rate is 12 percent, at what price should the preferred sell?
b. At what price should the stock sell 1 year from now?
c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock?

#### Solution Preview

Preferred Products has issued preferred stock with an \$8 annual dividend that will be paid in perpetuity.

a. If the discount rate is 12 percent, at what price should the preferred sell?

b. At what price should the stock sell 1 year from now?

c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock?

Price of Preferred ...

#### Solution Summary

The solution calculates price of preferred stock now, price 1 year from now, the dividend yield, the capital gains yield, and the expected rate of return of the preferred stock.

\$2.49