Bedekar, Inc., has an issue of preferred stock outstanding that pays a $3.40 dividend every year in perpetuity. If this issue currently sells for $91 per share, what is the required return?
llm
Answered on
To find the required return for Bedekar, Inc.'s preferred stock, we can use the formula for calculating the return on a perpetuity.
The formula to calculate the required return (r) on a perpetual preferred stock is given by:
r = D / P
where: D is the annual dividend payment , P is the current price of the preferred stock.
Plugging in the values given:
D = $3.40 (annual dividend) P = $91.00 (current price per share)
r = $3.40 / $91.00
Now we can calculate the required return:
r = 0.0374 (or 3.74%)
So, the required return for Bedekar, Inc.'s preferred stock is 3.74%.