XYZ Corp is planning to offer a special series of preferred shares. XYZ will set the dividend yield on these preferred shares so that they equal the return on its common shares. The risk-free rate in this economy is 4%, XYZ's Beta is 1.2 and the market risk premium is 2%. Also, the par value of the preferred stock is $2.

What dividend yield must XYZ offer?

Answer rating: 100% (QA)

Calculating the required return on its common shares first The required return on e... View the full answer