- The preferred stock pays $8 annually in dividends. Therefore, its nominal rate of return would be:
Nominal rate of return = $8/$80 = 10%.
Or alternatively, you could determine the security’s periodic return and multiply by 4.
Periodic rate of return = $2/$80 = 2.5%.
Nominal rate of return = 2.5% ´ 4 = 10%.
- EAR = (1 + rNOM/4)4 – 1
= (1 + 0.10/4)4 – 1
= 0.103813 = 10.3813%.
