a. Given a preferred stock with an annual dividend of $3 per share and a price of

Question:

a. Given a preferred stock with an annual dividend of $3 per share and a price of $40, what is the required rate of return?

b. Assume now that interest rates rise, leading investors to demand a required rate of return of 9 percent. What will the new price of this preferred stock be?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...