Question

Question 20

How is preferred stock affected by a decrease in the required rate of return?

		The dividend increases.
		The dividend yield increases.
		The value of a share of preferred stock increases.
		The dividend decreases.

Question 23

Beta measures

		diversifiable risk.
		standard deviation
		total risk.
		systematic risk.

please answer both questions. thank you

Answer 1

20: Option 3

Stock price of preference share= annual dividend /required rate of return

Hence if the required rate of return decreases the stock price will increase.

Dividend will not change since that is predetermined. Dividend yield will not change since that is determined by the initial price of the share. Hence the third option is correct.

23: option 4

Beta measures systematic risk which represents the risk associated with the market as a whole rather than a particular industry. This represents undiversifiable risk. It does not measure standard deviation or the total risk.