Horizon Communications stock pays a fixed annual dividend of $3.00. Because of lower inflation, the market's required yield on this preferred stock has gone from 12% to 10%. As a result
A) Horizon's dividend decreased by 6 cents.
B) the value of Horizon's preferred increased by $3.00.
C) the value of Horizon's preferred decreased by $5.00.
D) the value of Horizon's preferred increased by $5.00.

Question

Quizplus · Accepted Answer

The market's required yield decreased from 12% to 10%, which means that investors are now willing to accept a lower return on investment. This increase in demand for the stock will drive up the price, resulting in an increase in the value of Horizon's preferred stock by $5.00.

Horizon Communications Stock Pays a Fixed Annual Dividend of $3