The yield that investors require on convertible preferred stock is most likely:
A) less than that of similar dividend-rate non-convertible preferred stock.
B) the same as similar dividend rate non-convertible preferred stock.
C) greater than that of similar dividend-rate non-convertible preferred stock.

Question

Quizplus · Accepted Answer

Convertible preferred stocks offer the option to convert into a specified number of common shares, usually at the discretion of the holder. This conversion feature adds value to the preferred stock, making it more attractive to investors. As a result, investors are generally willing to accept a lower yield on convertible preferred stocks compared to similar non-convertible preferred stocks, because they also have the potential for capital appreciation if the company's common stock price increases.

The Yield That Investors Require on Convertible Preferred Stock Is