Business: Arondale aeronautics has perpetual preferred stock outstanding with a par value of $100. the stock pays a quarterly dividend of $3.00, and its current price is $125. what is its nominal annual rate of return? do not round intermediate calculations. round your answer to two decimal places. 9.6 % what is its effective annual rate of return? do not round intermediate calculations. round your answer to two decimal places. 9.95 %

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Arondale aeronautics has perpetual preferred stock

lorrainelopez

30.12.2021

Annual Rate of Return = 12%

Effective Annual Rate of Return = 9.6%

Explanation:

Nominal Annual Rate of return = $\frac{Dividend\: per\: share\: for\: each\: year}{Par\: price\:per\:share} \times 100$

Annual Dividend per share = $3 per quarter $\times$ 4 = $12 per share

Current price per share = $125

Par Price per share = $100

Thus Annual Rate of return = $12/$100 = 12%

Effective Annual Rate of Return = $\frac{Dividend\: per\: share\: for\: each\: year}{Current\: price\:per\:share} \times 100$

= $\frac{12}{125} \times 100$ = 9.6%

Final Answer

Annual Rate of Return = 12%

Effective Annual Rate of Return = 9.6%

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