Asked by Janninah Miller on Jun 21, 2024
Verified
Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $50.00,what is its nominal (not effective) annual rate of return?
A) 7.41%
B) 7.61%
C) 7.80%
D) 8.00%
Nominal Rate
The interest rate before adjustments for inflation, reflecting the rate of interest that a borrower pays a lender.
Annual Return
The percentage change in investment value from one year to the next, including any dividends or interest, indicating the investment’s gain or loss.
Dividend
A portion of a company's earnings distributed to its shareholders, typically in the form of cash or additional stock.
- Familiarize oneself with the approach to calculating the necessary returns on shares, based on projections of dividends and the implementation of growth models.
Verified Answer
HG
Hannah GuthrieJun 22, 2024
Final Answer :
D
Explanation :
The nominal annual rate of return is calculated by taking the annual dividend payment and dividing it by the price of the stock. In this case, the annual dividend is $1.00 per quarter, which totals $4.00 per year ($1.00 * 4). Dividing this by the price of the stock ($50.00) gives 0.08, or 8%.
Learning Objectives
- Familiarize oneself with the approach to calculating the necessary returns on shares, based on projections of dividends and the implementation of growth models.