Asha has to postpone her purchase of Edinburgh\'s preferred shares for just over

Question

Asha has to postpone her purchase of Edinburgh's preferred shares for just over four months. By the time she is ready to invest, the return on alternative investments of comparable risk has increased. She should expect the cost of her investment in Edinburgh's preferred shares to be less expensive. Assume that Asha delays her investment for another few months, and that when she is finally ready to make her 500-share investment in Edinburgh, the market price of Edinburgh's preferred stock has changed to $329.06 per share. If she pays this price to acquire each share of Edinburgh's preferred stock, what rate of return will Asha earn on her investment? Remember that the shares have a par value of $100 and a dividend rate of 9.75%. 2.96% 2.81% 2.37% 3.85%

Explanation / Answer

Rate of return asha will earn on investment = (100*9.75%)/329.06

= 9.75/329.06 i.e 0.0296 or 2.96%

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