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Allison Corp. has just issued nonconvertible preferred stock (cumulative) with a par value of $20 and an annual dividend rate of 4.25%. The preferred stock is currently selling for $18.75 per share. What is the annual yield or return (r) on this preferred stock? 4.26% 4.53% 4.11% 4.87%

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Answer:

4.53%

Explanation:

Data provided as per the question is below

Annual dividend rate = 4.25% with par value $20

Currently selling = $18.75

The calculation of annual yield or return is shown below:-

Annual dividend = $20 × 4.5%

= $0.85

Annual yield or return = Annual dividend ÷ Current selling price per share

= 0.85% ÷ $18.75

= 0.045333

= or 4.53%

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