Preferred stock pays a quarterly dividend of $2 per share. Next dividend comes in exactly one-fourth of a year. If the price of the stock is $80, what is the effective annual rate of return that the stock offers investors? https://www.coursehero.com/file/p56ue7o/5-1-Argaiv-Towers-has-outstanding-an-issue-of-preferred-stock-with-a-par-value/ This person came up with 10.38%. I'm coming up with 0.025% (2.5%).
The formula in my book says, to get the effective annual rate is (1 + required return rate / 4)^4 - 1.
The required return rate is 0.025. Is this the right formula for this problem? Is this person correct that it was 10.38%? How?