The Preferred Stock of the Pearson Institute Pays a Constant

question 300

Multiple Choice

The preferred stock of the Pearson Institute pays a constant annual dividend of $3 and sells for $21. You believe the stock will sell for $12 in one year. You must, therefore, believe that the required
Return on the stock will be ____ % ___________ in one year.

• A) 8; higher
• B) 8; lower
• C) 9; higher
• D) 10; lower
• E) 10; higher

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Definitions:

Higher Yield

Refers to investments offering a greater return in terms of interest or dividends, often accompanied by higher risk.

Effective Annual Rate

The interest rate on an investment or loan that reflects the actual annual rate of interest, accounting for compounding over a given period.

Semi-Annual Interest Payments

Interest disbursements made twice a year on a loan or bond.