Question

The price of preferred stock may react strongly to a change in Kp (required rate of...

The price of preferred stock may react strongly to a change in Kp (required rate of return) because

there is no maturity date.

corporate recipients of preferred stock dividends may receive a partial tax exemption.

preferred stock dividends have to be paid before common stock dividends.

preferred stock may be cumulative.

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Answer #1

For the given question -

The price of preferred stock may react strongly to a change in Kp (required rate of return) because -

  1. there is no maturity date
  2. corporate recipients of preferred stock dividends may receive a partial tax exemption
  3. preferred stock dividends have to be paid before common stock dividends.
  4. preferred stock may be cumulative.

Answer is option no - 1. there is no maturity date

Therefore, we can say that -

The price of preferred stock may react strongly to a change in Kp (required rate of return) because - there is no maturity date.

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