A Firm Has $2 Million Market Value and It Sells

question 44

Multiple Choice

A firm has $2 million market value and it sells preferred stock with a par value of $100. If the coupon rate on the preferred stock is 6% and the preferred stock trades at $98, what is the cost of preferred stock capital?

• A) 5.82%
• B) 6.12%
• C) 6.43%
• D) 6.73%

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Definitions:

Population standard deviation

A measure of the dispersion or variability of a set of data points in a population, indicating how much the individual data points differ from the population mean.

Sample mean

The average value of the sample set, calculated as the sum of all observations divided by the number of observations.

Population proportion

The ratio of members in a population that have a particular attribute or characteristic, represented as a fraction or percentage of the total.

Standard error of the mean

The standard deviation of the sampling distribution of the mean, indicating the variability of sample means around the population mean.