Answer: 8.6%

The cost of preferred equity is calculated as: Cost of preferred equity = Annual dividend / Current market price Annual dividend = Par value × Dividend rate = $150 × 8.0% = $12 Cost of preferred equity = $12 / $140 = 0.0857 or 8.57% This is closest to 8.6% among the given options. The calculation uses the current market price ($140) rather than the par value ($150) because investors require a return based on what they actually pay for the security.

Author: LeetQuiz Editorial Team