Preferred Stock Fundamentals

<p>Par value of the stock (C)</p> Signup and view all the answers

<p>They are not paid at all. (D)</p> Signup and view all the answers

<p>It determines the fixed dividend rate paid to investors. (C)</p> Signup and view all the answers

<p>$5.00 (A)</p> Signup and view all the answers

<p>Preferred stock always guarantees fixed dividend payments based on par value. (A)</p> Signup and view all the answers

<p>The yield decreases. (A)</p> Signup and view all the answers

<p>Market prices decline. (D)</p> Signup and view all the answers

<p>Dividends must be approved by the Board of Directors. (C)</p> Signup and view all the answers

<p>$25, $50, or $100 (C)</p> Signup and view all the answers

<p>They are inversely related. (A)</p> Signup and view all the answers

<p>Falling interest rates cause market prices to rise. (C)</p> Signup and view all the answers

<p>Interest rate fluctuations (B)</p> Signup and view all the answers

<p>Inflation is likely to rise. (C)</p> Signup and view all the answers

<p>A rapid decrease in cash value. (C)</p> Signup and view all the answers

<p>Raise interest rates. (D)</p> Signup and view all the answers

<p>When interest rates rise to 7%. (A)</p> Signup and view all the answers

<p>The market price declines. (D)</p> Signup and view all the answers

<p>7.14%. (C)</p> Signup and view all the answers

<p>Preferred stock dividends are subject to board approval. (C)</p> Signup and view all the answers

<p>The value increases. (B)</p> Signup and view all the answers

<p>It increases. (B)</p> Signup and view all the answers

<p>Bonds are less risky. (C)</p> Signup and view all the answers

<p>231,150,888%. (B)</p> Signup and view all the answers

<p>Be higher than bond interest rates. (C)</p> Signup and view all the answers

<p>They are legally obligatory. (B)</p> Signup and view all the answers

<p>They impact the market value of their investments. (C)</p> Signup and view all the answers

<p>The par value of the stock (C)</p> Signup and view all the answers

<p>Current yield fluctuates depending on the market price. (A)</p> Signup and view all the answers

<p>Yield is less than the dividend rate. (B)</p> Signup and view all the answers

<p>6.25% (D)</p> Signup and view all the answers

<p>Changes in interest rates (C)</p> Signup and view all the answers

<p>The yield decreases. (C)</p> Signup and view all the answers

<p>Yield is equal to dividend rate. (B)</p> Signup and view all the answers

<p>Dividends remain fixed after issuance. (A)</p> Signup and view all the answers

<p>The yield is greater than the dividend rate. (A)</p> Signup and view all the answers

<p>The market price paid for the stock and annual income. (B)</p> Signup and view all the answers

<p>They have a fixed dividend rate. (D)</p> Signup and view all the answers

<p>Increased consumer borrowing and spending. (C)</p> Signup and view all the answers

<p>When the company is highly profitable. (C)</p> Signup and view all the answers

<p>The stock may decrease in value. (C)</p> Signup and view all the answers

An equity security that acts like a fixed-income security, paying fixed dividends.

Regular payments made to preferred stock investors, typically quarterly.

The face value of a preferred stock share, used to calculate dividends.

The percentage of the par value paid as dividends.

Typically quarterly, sometimes annual or semi-annual.

A $100 par value preferred stock earning 5% pays $5 per year in dividends and thus $1.25 per share per quarter (5% of 100/4).

Preferred stock dividends are fixed, while common stock dividends can fluctuate.

Preferred stock is an equity with dividend income, while fixed-income securities, like bonds, typically pay interest to their investors.

The fixed face value of a preferred stock, used to calculate dividends, but not the market price.

A fixed percentage of the par value paid as dividends, regardless of market price.

The price at which a preferred stock trades in the secondary market, influenced by demand and issuer profitability.

The rate of return on a preferred stock, calculated by dividing the annual dividend by the market price.

The preferred stock's yield based on its current market price.

When a preferred stock trades below its par value.

When a preferred stock trades above its par value.

Yield considers the market price, while the dividend rate is fixed based on par value.

The cost of borrowing money, influencing businesses’ profitability, and thus preferred stock prices.

Changes in the price of preferred stock due to factors like demand and interest rates.

Another name for the current yield relating to preferred stocks.

A security, such as a preferred stock, that can be bought and sold in the market.

A preferred stock trading at its face value.

Yield inversely correlates to the market price. The lower the price, the higher the yield.

The profitability of the company issuing the preferred stock, a factor determining the market price of the preferred stocks.

Profit made when selling an investment for a higher price than its original cost.

Higher interest rates generally result in lower preferred stock prices, and vice versa.

The face value of a preferred stock share, typically $100, used to calculate dividends.

The percentage of the par value paid as dividends, which is fixed and never changes.

When the market price of a preferred stock is higher than its par value.

When the market price of a preferred stock is lower than its par value.

When interest rates are low for a long time, inflation can rise as people borrow more money and spend it, increasing demand and pushing up prices.

An extremely high and uncontrolled rate of inflation, often exceeding 50% per month.

A gradual increase in prices, typically between 2% and 3% per year, considered normal and healthy for a growing economy.

The central bank of the United States, responsible for controlling interest rates and managing the money supply.

The Federal Reserve's actions to increase interest rates, typically when inflation is high, to slow economic growth and reduce inflation.

The Federal Reserve's actions to decrease interest rates, typically when the economy is weakening or inflation is low, to stimulate economic activity.

The market price of preferred stock is heavily influenced by changes in interest rates, as investors consider the opportunity cost of investing in preferred stock versus other fixed-income securities.

Preferred stock dividends are usually set close to bond interest rates to attract investors. If bond rates rise, preferred stock dividends must be adjusted upwards to stay competitive.

Preferred stock is generally considered riskier than bonds because dividends are not legally obligated, whereas bond interest payments are.

When interest rates rise, the value of existing preferred stock with a fixed dividend rate decreases because investors can now buy newer securities with higher returns.

A measure of the annual income from an investment divided by its current market price, expressed as a percentage.

To sell a preferred stock paying a lower dividend rate in a market with higher interest rates, the seller might lower the price to increase the yield for potential buyers.

When interest rates fall, the value of existing preferred stock with a fixed dividend rate increases because it offers a higher return than new securities being issued with lower rates.

The market price of preferred stock is volatile and can fluctuate significantly due to changes in interest rates, even after issuance.

A key consideration for investors is the timing of their preferred stock purchases, as buying when interest rates are high can result in losses if rates continue to rise.