You are considering TWO possible investments
a. The first is preferred stock $100 (par value) that pays an annual dividend of 12% per share. Your required rate for the stock is 14%
b. The second is a common stock that recently paid dividend of $3.00. The firm's expected growth rate in dividends per share is 7%. You estimate that reasonable rate of return for the stock is 20%.
i. If the current price of the preferred stock is $120, what is the expected rate of return? (Refer to the information in (a) above).
ii. If the value of the current stock is $35, what would be the expected rate of return?