Preferred stock is valued as if it were a ________.
A) fixed-income obligation
B) bond
C) perpetuity
D) common stock

Question

Quizplus · Accepted Answer

Preferred stock is valued as if it were a perpetuity, which is a type of investment that pays a fixed amount of cash flow for an indefinite period of time. This is because preferred stock pays a fixed dividend that is usually set at a percentage of its par value and is paid out on a regular basis. The value of a perpetuity is calculated by dividing the cash flow by the discount rate, so the value of preferred stock is also calculated in a similar way.

Preferred Stock Is Valued as If It Were a ________