How is the annual yield on a perpetual preferred share calculated?

The annual yield on a perpetual preferred share is calculated by taking the dollar amount of the dividend and dividing it by the current market price of the share. However, it seems there is a misalignment with the provided answer choice since it mentions "annual yield on dividend."

To compute the yield accurately: you would use the annual dividend, which is the fixed payment made to preferred shareholders, and divide it by the current price of the perpetual preferred share. This formula effectively provides the yield as it reflects the return investors would expect based on the price they are paying for the share.

This calculation is essential because it helps investors assess the income-generating potential of their investment relative to its market price, giving a clear picture of how much value the dividends are offering relative to the amount invested.

In this context, understanding how the yield is derived helps in making informed investment decisions with respect to preferred shares in the market, which carry unique characteristics differing from common shares, particularly in their dividend structure and claims on assets.