A Share of Preferred Stock Pays a Dividend of $0

question 34

Multiple Choice

A share of preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is your nominal (not effective) annual rate of return?

• A) 10%
• B) 8%
• C) 6%
• D) 12%
• E) 14%

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Definitions:

Source of Cash

Any activity or operation within a business that generates cash, including operations, financing, and investing activities.

Accounts Receivable Period

The average number of days that it takes for a company to collect payments owed by its customers after a sale has been made.

Early Payment Discount

An incentive offered by a seller to a buyer for paying a bill before the due date.

Grants Credit

The offering of deferred payment terms or a line of credit to a buyer for the purchase of goods or services.