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Series 7 practice questionmediumEquity Securities — Preferred Stock — Adjustable Rate

Which type of preferred stock would exhibit the LEAST price volatility in response to interest rate changes?

  1. AFixed-rate cumulative preferred
  2. BParticipating preferred
  3. CAdjustable-rate preferred✓ Correct answer
  4. DConvertible preferred
Explanation

Why C — Adjustable-rate preferred

Adjustable-rate (or floating-rate) preferred stock has a dividend rate that resets periodically based on a benchmark interest rate. Because the dividend adjusts with market rates, the stock price remains more stable when interest rates change. Fixed-rate preferred stock, by contrast, experiences significant price fluctuations as rates move, similar to fixed-rate bonds.

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