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The Hill company has a perpetual preferred stock issue outstanding that pays 10% annual dividend. The par value of each share is $100 and teh dividend is paid quarterly. The shares are currently trading at $85 per share.

a. What is the expected nominal rate of return on the issue?

b. What is expected effective annual rate of return (EAR)?

c. What is the expected after-tax return to an individual investor in the 34% marginal tax bracket? (b. answer x (1-tax rate))

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