CFA Practice Question

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CFA Practice Question

AC Ltd. has preferred stock that pays a $1.25 dividend per share and sells for $25 dollars a share. What is the cost of preferred stock?

A. 4.75%
B. 5%
C. 20%
Correct Answer: B

The cost of preferred stock is kps = Dps / Pn. In this case, 1.25 / 25 = 0.05 or 5%.

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