SIE Exam Question 66: Answer and Explanation

Question: 66

What are some characteristics of preferred stock?

• A. Unless noted differently, par value for these shares is $1,000.
• B. Ownership of these shares provides a means of fixed income for an investor through dividend payments.
• C. Due to the fixed income nature of these shares, changes in interest rates have no effect on the price of these shares.
• D. Maturity dates for these shares range from 1 to 25 years.

Correct Answer: B

Explanation:

Ownership in preferred stock provides a fixed income to the investor through dividend payments. The par value of shares is generally $100, not $1,000. Due to the fixed income nature of these shares, they are more sensitive to changes in interest rates, demonstrating an inverse relationship between rates and pricing. These shares have no maturity date and are therefore considered perpetual.