The floating rate feature on preferred stock allows the shareholders
A) to receive more dividends than the quoted yield when the firm enjoys a good year.
B) to pay lower taxes when the dividend yield increases.
C) to receive dividends which the corporation did not pay in previous years.
D) to receive a higher or lower dividend yield depending on current competitive market conditions.

Question

Quizplus · Accepted Answer

The floating rate feature on preferred stock allows shareholders to receive a higher or lower dividend yield depending on current competitive market conditions. This means that if interest rates rise, the dividend yield will also increase, and shareholders will receive a higher rate of return. On the other hand, if interest rates fall, the dividend yield will decrease, and shareholders will receive a lower rate of return.

The Floating Rate Feature on Preferred Stock Allows the Shareholders