The Price of Preferred Stock May React Strongly to a Change

question 58

Multiple Choice

The price of preferred stock may react strongly to a change in K_p because

• A)preferred stock may be cumulative.
• B)preferred stock dividends have to be paid before common stock dividends.
• C)there is no maturity date.
• D)corporate recipients of preferred stock dividends may receive a partial tax exemption.

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Definitions:

Tax Benefits

Financial advantages granted by governmental policies to reduce a taxpayer's burden, often to encourage certain business activities or investments.

Capital Lease

A lease classified as an asset on a company's balance sheet, indicating the lessee has ownership-like rights.

Present Value

is a financial calculation that determines the current value of future cash flows or income streams, discounted at a particular interest rate.