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susans1980 · Oct 20, 2011, 07:42 PM

What is the dividend on an 8 percent preferred stock that currently sells for $45 and has a face value of $50 per share?

and

Tangshan Mining is considering issuing preferred stock. The preferred stock would have a par value of $75, and a 5.50 percent dividend. What is the cost of preferred stock for Tangshan if flotation costs would amount to 5.5 percent of par value?

ebaines · Oct 21, 2011, 05:53 AM

I'll help you with the first one, then hopefully you'll be able to answer both on your own.

The dividend yield is determined by the amount of dividend paid per year by the company divided by the price of the stock. An 8% dividend on a $50 preferred stock would therefore yield 8% of $50 = $4 per year. If someone then buys that stock at $45 he still receives $4 from the company every year in dividends. His yield is therefore $4/$45, expressed as a percent. Can you take it from here?