Thurber Inc. has issued both common and prefermed stock. Thurber\'s common stock
ID: 2651844 • Letter: T
Question
Thurber Inc. has issued both common and prefermed stock. Thurber's common stock just paid a $1.64 dividend and its current price is $22 per share. The common dividend is expected to grow at a constant rate of 5% per year Thurber's preferred stock pays a perpetual $8.62 annual dividend and sells for $98.25. The preferred stock price is expected to remain constant in the foreseeable future. Use the table below to indicate the expected total return expected dividend yield, and expected capital gains yields on Thurber's common and preferred stock. Common stock Preferred stock Expected total return Expected dividend yield Expected capital gains yield 0.00% 0.00% 5.00% 4.00% Which is riskier, Thurber's common or preferred stock? 1.00% O Thurber's preferred stock is riskier. 2.00% O They are of equal risk. o Thurber's common stock is riskier.Explanation / Answer
Answer:
Common Stock
Preferred Stock
Calculation of Expected Total Return :
Formula :
(Expected Dividend / Current Price ) + growth rate
Dividend / Price
Calculation :
((1.64*105%)/22)+0.05
8.62 / 98.25
=
12.83%
8.77%
Calculation of Expected Dividend Yield :
Formula :
(Expected Dividend / Current Price )
Dividend / Price
Calculation :
((1.64*105%)/22)
8.62 / 98.25
=
7.83%
8.77%
Common Stock
Preferred Stock
Calculation of Expected Total Return :
Formula :
(Expected Dividend / Current Price ) + growth rate
Dividend / Price
Calculation :
((1.64*105%)/22)+0.05
8.62 / 98.25
=
12.83%
8.77%
Calculation of Expected Dividend Yield :
Formula :
(Expected Dividend / Current Price )
Dividend / Price
Calculation :
((1.64*105%)/22)
8.62 / 98.25
=
7.83%
8.77%
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