The Hill company has a perpetual preferred stock issue outstanding that pays 10% annual dividend. The par value of each share is $100 and teh dividend is paid quarterly. The shares are currently trading at $85 per share.
a. What is the expected nominal rate of return on the issue?
b. What is expected effective annual rate of return (EAR)?
c. What is the expected after-tax return to an individual investor in the 34% marginal tax bracket? (b. answer x (1-tax rate))