The fair market value of a preferred share is $45. The share pays a quarterly payment of $.65. An investor is able to purchase the share for $42. What will be the investor's annually compounded rate of return?

Annually Compounded

Interest on an investment or loan calculated once a year and added to the principal sum for calculating future interest.

Quarterly Payment

Payments made every three months in a year, often used for loans, subscriptions, or service contracts.

Preferred Share

A class of ownership in a corporation that has a higher claim on its assets and earnings than common shares, typically with fixed dividends.

Gain a clear understanding of compound interest and its application in devising financial strategies.
Determine the time span or the necessary rate to attain a financial objective through compound interest.
Ascertain the fair market price of financial instruments by analyzing dividend disbursements and requisite rates of return.

Verified Answer

Final Answer :

6.34%

Learning Objectives

Gain a clear understanding of compound interest and its application in devising financial strategies.
Determine the time span or the necessary rate to attain a financial objective through compound interest.
Ascertain the fair market price of financial instruments by analyzing dividend disbursements and requisite rates of return.