Chapter 2, Problem 1CP

Summary Introduction

To select:

The correct answer that signifies the reason because of which preferred stock yields are often lower than yields on bonds of the same quality.

Introduction:

Preferred Stock - It is share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder.

Bond - It is a financial instrument which is used to raise money from debt market i.e. it is like a loan against the security.

Yield − It is the expected return / actual return which an investor expects from the money invested in securities.