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Wallace Container Company issued $100 par value preferred stock 10 years ago. The stock provided an 8 percent yield at the time of issue. The preferred stock is now selling for $74. What is the current yield or cost of the preferred stock?

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Answer:

Current dividend paid = 8% x $100 = $8

Current yield = Current dividend paid

                         Current market price

Current yield = $8

                         $74

Current yield  = 0.1081 = 10.81%

Explanation:

Current yield is the ratio of current dividend paid to current market price. The current dividend paid is $8 and the current market price is $74. The division of current dividend by current market price gives current yield.

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