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?
- AFixed-rate cumulative preferred
- BParticipating preferred
- CAdjustable-rate preferred✓ Correct answer
- 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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