Even Though the Dividend Rate on an Adjustable-Rate Preferred Stock

question 30

Multiple Choice

Even though the dividend rate on an Adjustable-Rate Preferred Stock (ARPS) is floating to keep in line with interest rates, the instrument still suffers from risk such as:

• A)a thin market causing potential principal risk and liquidity concerns.
• B)the risk of downgrades from the narrow range of issuers.
• C)the impact of tax law changes, which may reduce the after-tax value of the instrument.
• D)All of the above.
• E)None of the above.

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Definitions:

Payment System

A mechanism or a set of instruments that facilitates the transfer of funds from one entity to another, which can be operated by financial institutions, electronic systems, or through manual processes.

Medicare Managed Care

A type of Medicare health plan provided by private companies that contract with Medicare to provide all Part A and Part B benefits and often Part D (prescription drug coverage) as well.

Primary Care Physician

A healthcare provider who offers general medical treatment to patients and is usually the first point of consultation for all health issues.

Referrals

Recommendations to consult another physician or specialist.