Holdup bank has an issue of preferred stock with a $1.01 stated dividend that just sold for $47.27 per share. What is the banks cost of preferred stock.

The cost of preferred stock (also known as the dividend yield for preferred stock) can be calculated using the formula:

\[ \text{Cost of Preferred Stock} (r_p) = \frac{\text{Annual Dividend}}{\text{Price per Share}} \]

Given:
- Annual Dividend = $1.01
- Price per Share = $47.27

Plugging in the values:

\[ r_p = \frac{1.01}{47.27} \]

Let's compute this:

\[ r_p = \frac{1.01}{47.27} \approx 0.0214 \]

To express this as a percentage:

\[ r_p \approx 0.0214 \times 100 = 2.14\% \]

Therefore, the bank's cost of preferred stock is approximately **2.14%**.

Would you like to see any more details or have any questions?

Here are some related questions:

1. How does the cost of preferred stock compare to the cost of common equity?
2. What factors can affect the price of preferred stock?
3. How is the cost of preferred stock used in the calculation of a company's weighted average cost of capital (WACC)?
4. How does the stability of preferred stock dividends impact investor decisions?
5. What are the tax implications for preferred stock dividends compared to common stock dividends?
6. How does the preferred stock's cost influence a company's financial decisions?
7. What is the difference between cumulative and non-cumulative preferred stock?
8. How do changes in interest rates affect the market price of preferred stock?

**Tip:** When evaluating investments in preferred stock, consider both the dividend yield and the stability of the issuing company to ensure a reliable income stream.

Learn how to calculate the bank's cost of preferred stock using the formula: Cost of Preferred Stock = Annual Dividend / Price per Share. Given an annual dividend of $1.01 and a price per share of $47.27, find out the bank's cost of preferred stock. Includes step-by-step calculation and explanation.

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