Calculate the Nominal Annual Rate of Return

25 Jan 2023

Question:

What is the nominal annual rate of return for a share of preferred stock that pays a quarterly dividend of $1.7 and is currently priced at $120?

The nominal annual rate of return for this preferred stock is 5.67%.

To calculate the nominal annual rate of return:

1. Calculate the annual dividend amount by multiplying the quarterly dividend by the number of quarters in a year:

$1.7 * 4 quarters = $6.8

2. Divide the annual dividend by the price of the preferred stock:

$6.8 / $120 = 0.0566667

3. Convert the result to a percentage by multiplying by 100:

0.0566667 * 100 = 5.67%

Therefore, the nominal annual rate of return for this preferred stock is 5.67%.