The Floating Rate Feature on Preferred Stock Allows the Shareholders

question 77

Multiple Choice

The floating rate feature on preferred stock allows the shareholders

• A) to receive more dividends than the quoted yield when the firm enjoys a good year.
• B) to pay lower taxes when the dividend yield increases.
• C) to receive dividends that the corporation did not pay in previous years.
• D) to receive a higher or lower dividend yield depending on current competitive market conditions.

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Definitions:

Operating Leverage

This is a measure of how revenue growth translates into growth in operating income, showing the proportion of fixed costs in a company's cost structure.

Financial Leverage

Financial leverage refers to the use of borrowed funds to increase the potential return on investment, amplifying both potential gains and losses.

Technological Advantages

Benefits a company gains by utilizing superior technology compared to its competitors, potentially leading to higher efficiency and profit margins.

Equity Account

An account that represents the ownership interest of shareholders in a corporation, reflected in common and preferred shares.