Which of the following statements concerning preferred stock is MOST correct?

Question

Quizplus · Accepted Answer

Preferred stock dividends are typically fixed, which means they can be considered as a perpetuity. A perpetuity is a stream of equal cash flows that continue indefinitely. Because the dividend of preferred stock is typically fixed, preferred stock can be valued as a perpetuity. Choice A is incorrect because preferred stock is not valued the same as zero coupon bonds as zero coupon bonds have no coupon payments, while preferred stock has fixed dividend payments. Choice B is incorrect because the dividend payment is fixed, and it does not increase with time. Choice D is incorrect because the preferred stock dividend is a fixed amount, and it is not based on common stock dividends. Additionally, preferred stock dividends must be paid first, but they are not calculated as a percentage of common stock dividends.

Which of the Following Statements Concerning Preferred Stock Is MOST