How Do You Calculate Nominal Annual Rate Preferred Stock?
The nominal annual rate of return on preferred stock is the gain from dividends the preferred stock returned during the year compared to the price of the investment. This rate only presents a ballpark estimate of your return; if you want to find the real rate of return, take the nominal rate and subtract the rate of inflation. Find the share price of the preferred stock and the price of the annual preferred dividend. Since dividends are often paid quarterly, make sure you calculate an annual rate. For example, if the preferred dividend pays $5 quarterly, the annual dividend is $20. Apply the formula for nominal annual rate of return. The formula is: Annual preferred dividend divided by preferred stock price equals nominal rate of return. Do the calculations. If the share price of a preferred stock is $200 and it pays an annual dividend of $20, the formula is: $20 divided by $200. That equals .1, or 10%, your nominal rate of return.
