This Question: 1 pt 6 of 40 (0 complete) This Test: 40 pts possible Question Hel

Question

This Question: 1 pt 6 of 40 (0 complete) This Test: 40 pts possible Question Help * (Preferred stock expected return) You are planning to purchase 100 shares of preferred stock and must choose between Stock A and Stock B. Stock A pays an annual dividend of $4.25 and is currently selling for $35. Stock B pays an annual dividend of $4.05 and is selling for $37. If your required return is 11.55 percent, which stock should you choose? What is the expected return of Stock A? 1% (Round to two decimal places ) What is the expected return of Stock B? % (Round to two decimal places ) If your required return is 11.55 percent, you should choose (Select from the drop-down menu ) Stock B None Stock A SO wt Enter your answer in each of the answer boxes xp ork-help/foundations of-finance-8th-edition-solutions-9780132994873 search can help e

Explanation / Answer

a.)  Stock A return : Annual dividend / current selling price

= $4.25 / $35

= 12.14%

b.) Stock B Return :  Annual dividend / current selling price

= $4.07 / $37

= 11.00%

c.) If the required rate of return is 11.55% then STOCK A ie., 12.14% should be preferred.as it has the highest return when compared with the given rate of return ie., 11.55 %

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