How is preferred stock affected by a decrease in the required rate of return?
A)The value of a share of preferred stock decreases.
B)The dividend increases.
C)The dividend decreases.
D)The value of a share of preferred stock increases.

Question

Quizplus · Accepted Answer

When the required rate of return decreases, the value of a share of preferred stock increases, as the future dividend payments become more attractive to investors. Preferred stocks tend to have a fixed dividend, so the decrease in the required rate of return does not affect the dividend amount.

How Is Preferred Stock Affected by a Decrease in the Required