One Advantage of Preferred Stock Is Its Ability to Increase

question 141

True/False

One advantage of preferred stock is its ability to increase leverage, which in turn will magnify the effects of increased earnings on common stockholders' returns.

---

Definitions:

Bond

A fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a variable or fixed interest rate.

Capital Gains Yield

The change in the price of a security or investment over a specified period, excluding dividends, expressed as a percentage of the investment's initial price.

Total Return

The overall return on an investment over a specific time period, including both capital gains and dividends or interest, expressed as a percentage of the investment's initial cost.

Real Rate

The interest rate adjusted for inflation, reflecting the true return on an investment over time.