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.

Question

Quizplus · Accepted Answer

The lack of a maturity date means that preferred stock is more sensitive to changes in the required rate of return (Kp) since the dividends are expected to be paid indefinitely.

The Price of Preferred Stock May React Strongly to a Change