Bruner Aeronautics has perpetual preferred stock outstandingwith a par value of

Question

Bruner Aeronautics has perpetual preferred stock outstandingwith a par value of $100. the stouck pays a quarterly dividend of$2, and its curremt price is $80. a- what is its nominal annual rate of return? b- what is its effective annual rate of return? Bruner Aeronautics has perpetual preferred stock outstandingwith a par value of $100. the stouck pays a quarterly dividend of$2, and its curremt price is $80. a- what is its nominal annual rate of return? b- what is its effective annual rate of return?

Explanation / Answer

a. The nominal annual rate of return is calculated here: Dividend per year / Price = (4*2) / 80 = 10% b. The effective annual rate of return is calculated as such: (1 + 2/80)^4 = 1.025^4 = 1.104 or 10.4%

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