Answer: 8.735%
Explanation:
From the question, we are informed that Alistar Inc. recently issued $90 par value preferred stock that pays a 8.25% dividend rate per year and that the stock is currently selling for $85.
The expected return of this preferred stock will be calculated this:
The annual dividend will be:
= $90 × 8.25%
= $90 × 0.0825
= $7.425
The expected return on the preferred stock will be:
= Annual dividend ÷ Current price
=$7.425 ÷ $85
=0.08735
=8.735%
