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# Calculating the return on the preferred stock

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BAC is considering an issue of preferred stock. The dividends are 8.12% of the \$25 par value.

a. If the current price is \$26.25 per share, what is the return on the preferred stock?

b. Suppose the preferred stock will mature in 20 years. If the price is \$26.25 per share, what is the return on the preferred stock? HINT: This is just like a bond, but the face value is 25. For the problem, you can assume the dividends are annual.

https://brainmass.com/economics/bonds/calculating-the-return-on-the-preferred-stock-509202

#### Solution Preview

Please refer attached file for better clarity.

a. If the current price is \$26.25 per share, what is the return on the preferred stock?
Dividend=D=25*8.12%=\$2.03
Price of stock=P=\$26.25
Return on preferred stock=r=D/P=7.73%

b. Suppose ...

#### Solution Summary

Solution describes the steps to estimate the rate of return on the preferred stock in the given case.

\$2.19