Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 5.60 percent that sells for $95.34 per share. If the par value is $100, what is the cost of the company's preferred stock

5.87%

Explanation:

The computation of the cost of preferred stock is shown below:

Cost of preferred stock = Annual dividend ÷ Price of preferred stock per share

where,

Annual dividend is

= Coupon rate × par value of the share

= 5.60% × $100

= $5.6

And, the price of preferred stock per share is $95.34

So, the cost of the company preferred stock is

= $5.6 ÷ $95.34

= 5.87%

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