Even though the dividend rate on an Adjustable-Rate Preferred Stock (ARPS) is floating to keep in line with interest rates,the instrument still suffers from risk such as:

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ARPS still carries risks despite its floating dividend rate. Its limited market could lead to volatility and reduced liquidity, which may affect the principal value of the instrument. Additionally, ARPSs are issued by a narrow range of issuers, hence the chance of downgrade is high. Finally, any changes in tax laws may result in lower after-tax returns for the holder of the ARPS. Therefore, all of the options given are the potential risks associated with ARPS.

Even Though the Dividend Rate on an Adjustable-Rate Preferred Stock