The price of preferred stock may react strongly to a change in k_pbecause 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

Preferred stock has no maturity date, meaning it can be more sensitive to changes in the required rate of return (k_p) as it affects the present value of future dividends indefinitely.

The Price of Preferred Stock May React Strongly to a Change