BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PREFERRED STOCK RETURNS Bruner Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2, and its current price is $80.

  1. a. What is its nominal annual rate of return?
  2. b. What is its effective annual rate of return?

a.

Summary Introduction

To compute: The nominal rate of return on a perpetual preferred stock.

Perpetual Preferred Stock:

Perpetual preferred stock is a financial instrument for long term financial assistance required by the companies. A category of preferred stock that doesn’t have a maturity date and is available without any fixed tenure is called perpetual preferred stock.

Nominal rate of Return:

Nominal rate is the rate that is mentioned with the concerned security or financial instrument. It determines the basic cost of finance without any compounding effect.

Explanation

Given,

Dp is $8 in a year ($2 for each quarter).

Vp is $80.

Formula to compute nominal annual rate of return,

rp=DpVp

Where,

  • Dp is annual dividend on preferred stock

b.

Summary Introduction

To compute: The effective rate of return on a perpetual preferred stock.

Effective rate of Return:

Effective rate is the resulted rate after the nominal rate is compounded based on the frequency of payment during a year. It is more than the nominal annual rate of return as it considers the nominal return on each of the payment of a year.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

REQUIRED ANNUITY PAYMENTS A father is now planning a saving program to put his daughter through college. She is...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

How are the three financial statements shown in this chapter connected?

College Accounting (Book Only): A Career Approach