J&S Corporation Has Preferred Stock Which Paid an Annual Dividend

question 39

Multiple Choice

J&S Corporation has preferred stock which paid an annual dividend in 2009 of $5 per share.J&S also has common stock which paid a dividend in 2009 of $5.Which of the following statements is most correct concerning J&S stock?

• A) The price of the preferred stock should equal the price of the common stock since the dividends are the same.
• B) The price of the common stock could be higher than the price of the preferred stock if the common stock dividends are expected to grow in the future.
• C) The price of the preferred stock is expected to be higher than the price of the common stock because the required return on preferred stock is higher than the required return on common stock.
• D) If the required return on the preferred stock is the same as the required return on the common stock, then the price of preferred stock should equal the price of the common stock if markets are efficient.

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