Which of the following preferred stock properties would
provide the best argument favoring purchase of preferred
stock by an investor?
A. When long-term bond yields decline, the value of preferred
stock can potentially rise.
B. Because preferred stock trading volume is lower than
common stock trading volume, preferred stock prices are
less volatile than common stock prices.
C. The yield differential between preferred stock and
bonds is smaller than would be expected on the basis
of risk differentials.
D. Preferred stockholders receive preferential treatment over
lower-class, common stockholders when the corporation
earns sufficient profit to pay creditors and shareholders.
I would think it's D, but not sure
The answer is A.
When long-term bond yields decline, the value of preferred
stock can potentially rise.
because of the risk differentials, would it be C. is that possible?
To determine which of the provided options is the best argument favoring the purchase of preferred stock by an investor, we can examine each option and analyze its merits.
A. When long-term bond yields decline, the value of preferred stock can potentially rise.
This option suggests that if long-term bond yields decrease, the value of preferred stock may increase. However, it does not provide a significant advantage or unique benefit of preferred stock compared to other options.
B. Because preferred stock trading volume is lower than common stock trading volume, preferred stock prices are less volatile than common stock prices.
This option highlights the lower trading volume and potentially lower volatility of preferred stock compared to common stock. This feature could be seen as an advantage for investors who prioritize stability and lower risk.
C. The yield differential between preferred stock and bonds is smaller than would be expected on the basis of risk differentials.
This option suggests that the yield difference between preferred stock and bonds is narrower than expected based on the risk differential between the two. This could be seen as a positive factor, indicating that preferred stock offers a potentially better return compared to bonds for a given level of risk.
D. Preferred stockholders receive preferential treatment over lower-class, common stockholders when the corporation earns sufficient profit to pay creditors and shareholders.
Option D indicates that preferred stockholders receive preferential treatment over common stockholders when profits are distributed. This preferential treatment may include higher priority in the payment of dividends and liquidation proceeds. This feature can be considered a significant advantage for investors holding preferred stock.
Considering the options provided, option D stands out as it highlights the preferential treatment given to preferred stockholders compared to common stockholders. This preferential treatment can provide a stronger argument favoring the purchase of preferred stock by an investor. Consequently, it appears that your initial assumption is correct; option D would be the best argument favoring the purchase of preferred stock by an investor.