Hello, I am struggling with quiz Achievable…
Can someone please help me?
Thanks!
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Hi @Exciting_aqua_swan, thanks for reaching out.
I’m happy to help clarify this further - which part could use additional explanation?
Participating preferred stock is eligible for additional dividends above the stated dividend rate. If the issuer has a successful year, this type of preferred stock will pay more than the fixed dividend rate. Because the participating feature is a benefit to investors, these shares will be in higher demand than a similar security without the participating feature. Higher demand results in a higher market price and lower yield. Therefore, a similar security without the participating feature will trade at a lower market price and a higher yield.
The yield (7%) is lower than the dividend rate (8%), which indicates the security is trading at a premium to par. Remember, yields and market prices have an inverse relationship. If the yield is lower than the dividend rate, the market price must be above par (premium), and vice versa. If the yield is higher than the dividend rate, the market price must be below par (discount).