Which Statement Is True

question 16

Multiple Choice

Which statement is true?

• A)An increase in the market value of preferred stock will increase a firm's weighted average cost of capital.
• B)The cost of preferred stock is unaffected by the issuer's tax rate.
• C)Preferred stock is generally the cheapest source of capital for a firm.
• D)The cost of preferred stock remains constant from year to year.
• E)Preferred stock is valued using the capital asset pricing model.

---

Definitions:

Annuity

A finance-related product that ensures a continual payment stream to a recipient, mainly used in planning for life after work.

Ordinary Annuity

Steady cash flows facilitated at the decline of each era during a certain season.

Nominal Interest

The rate of interest quoted on a loan or bond without adjusting for inflation or other factors that could affect the real rate of return.

Effective Rate

The actual interest rate on a loan or investment, taking into account the compounding of interest, as opposed to the nominal rate.