How to Calculate Nominal Rate of Return on Preferred Stock

Review the definition of nominal. Nominal is the term often used to refer to "current" or "unadjusted" when used in conjunction with rates. For instance, a tax-free rate or an inflation-adjusted rate versus a nominal rate. The nominal rate is always the easiest rate to calculate even though it may not be the most accurate or meaningful.

Work through an example. Let's say you purchase preferred stock that pays a quarterly dividend of $3. If the price of the preferred stock is $100, calculate the nominal rate of return.

Review the formula. The calculation is "annual dividend (quarterly dividend price)/ price" = $34)/$100 = $12 / $100 = .12 or 12 percent. The nominal rate of return is 12 percent.