The market price of preferred stock is sensitive to interest rates.

Question

Quizplus · Accepted Answer

Preferred stock is a type of stock that pays a fixed dividend and has priority over common stock in terms of receiving dividends and liquidation. As interest rates rise, the required rate of return on investment also increases, making preferred stocks less attractive to investors. This decreases the demand for preferred stocks and can lower their market value. Conversely, when interest rates are low, preferred stocks become more attractive to investors and can increase in value. Therefore, the market price of preferred stock is sensitive to interest rates.

The Market Price of Preferred Stock Is Sensitive to Interest