36 Lithium Lakes Industries preferred stock has a par value

36) Lithium Lakes Industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share. It presently sells for $87 per share. What do investors require as a rate of return on this stock? Round off to the nearest .10%.

A. 6.9%

B. 6.0%

C. 9.3%

D. 14.5%

Solution

Solution: This is a simple question to find the rate of return or we can say similar as the rate of interest in case of Simple Interest. So in this problem we have par value which is 100 but we have to do nothing with it. Now the selling price is 87 per share and dividend paid is 6. So we can calculate the rate of return as:

= (6/87)*100

=6.89% approximately equal to 6.9%