Question

Ten years ago, Stigler Company issued $100 par value preferred stock yielding 6%. The preferred stock is now selling for $102 per share. What is the approximate current yield or cost of the preferred stock? (Disregard flotation costs.) Multiple Choice There is not enough information to answer the question. 5.9% 8% 7.76%

Answer 1

Answer:

Option (B) is correct.

Explanation:

Par value of preferred stock = $100

Yielding = 6%

Current market price = $102 per share

Dividend = Yielding × Par value of preferred stock

               = 0.06 × $100

               = $6

Cost of preferred stock = (Dividend ÷ Current Market Price) × 100

                                       = ($6 ÷ $102) × 100

                                       = (0.058) × 100

                                       = 5.9%