The market price of preferred stock is inversely related to the market rates of interest.

Question

Quizplus · Accepted Answer

Preferred stock is a type of security that pays a fixed dividend and has characteristics of both equity and debt. Since preferred stock pays a fixed dividend, it is frequently compared to a bond. As market rates of interest increase, the fixed dividend becomes less attractive, and the market price of preferred stock decreases. Conversely, as market rates of interest decrease, the fixed dividend becomes more attractive, and the market price of preferred stock increases. Therefore, the market price of preferred stock is inversely related to the market rates of interest.

The Market Price of Preferred Stock Is Inversely Related to the Market