(Preferred expected return) You are planning to purchase 100 shares of preferred stock and must choose between stock A and stock B. Stock A pays an annual dividend of $3.25 and is currently selling for $36. Stock B pays an annual dividend of $3.05 and is selling for $38. If your required return is 8.53 percent, which stock should you choose?

Question

a. What is the expected return of stock A?

b. What is the expected return of stock B?

c. If you required return is 8.53 percent, which stock should you choose?