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Compute the expected annual rate of return for the strategy

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Reference no: EM132039646

The company preferred stock just yesterday paid its annual dividend of $4.15 per share. Today’s share price is $41.23. You believe the dividend yield is abnormally high but that it will revert to its normal value of 5.80%. Your strategy is to buy the stock today and receive annual dividends for 4 years. Upon receiving the last dividend you expect the dividend yield will be normal. Your strategy is to sell the stock at that time. Compute the expected annual rate of return for the strategy.

Find ROR if preferred divyld reverts to normal after N years. (P=Price)

a. 18.34% b. 19.17% c. 22.10% d. 23.16% e. 24.11%

Reference no: EM132039646

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