Preference share: Each quarter, Transam Ltd pays a dividend on its perpetual preference share. Today, the share is selling at $83.45. If the required rate of return for such shares is 10.5 percent, what is the quarterly dividend paid by this company?
A) $8.76
B) $10.50
C) $2.19
D) $2.63

Question

Quizplus · Accepted Answer

The quarterly dividend can be calculated using the formula for the price of a perpetual preference share: Price = Dividend / Required Rate of Return. Rearranging gives Dividend = Price * Required Rate of Return. Here, Dividend = $83.45 * 0.105 / 4 = $2.19.

Preference Share: Each Quarter, Transam Ltd Pays a Dividend on Its