Fee Founders has preferred stock outstanding that pays a dividend of $5 at the end of each year.?

Question

The preferred stock sells for $60 a share.

What is the preferred stock’s required rate of return?

Please tell me how you came up with the answer.

Answer 1

$5/$60 = 1/12 = 8.33%

Answer 2

The bond valuation is trivial with a financial calculator, and a nightmare if you don't have one. Get yourself an HP-12C, and sin no more. By comparison, the preferred stock problem is trivial. A simple division gives a rate of 8.3%.