Explain what is meant by the statement that a preferred stock is a hybrid between a common stock and a bond. What factors determine the value of a share of preferred stock? Solution Preferred stock is featured as its name that is preference . Preferred stock is always given preference over common stock that is they are the first one to claim their right on the income of the company either at the time of distribution of income or at the time of the liquidation of the company , this is the main difference between the preferred stock and the common stock . Preferred stock is also considered as a type of bond due to its feature of fixed income and repay characteristic at the time of maturity these are the reason ehy the preferred stock is considered as a hybrid between common stock and a bond Factors determining valuation of preferred stock 1) Fixed dividend: Holders of preferred stock treat it as a investment that gives them fixed income in the form of dividend like bond gives fixed interest 2) Market interest rates: Preferred stocks are also a type of bond hence market interest rates plays a important role in the valuation of preferred stock , if market interest rate is down then preference rate increases and it the market interest rate is high then the preference rate goes down 3) Structure: Whether the preferred stock is convertible or non convertible also plays a great role in the valuation of the preferred sock .

1. Explain what is meant by the statement that a preferred stock is a hybrid between a common
stock and a bond. What factors determine the value of a share of preferred stock?
Solution
Preferred stock is featured as its name that is preference . Preferred stock is always given
preference over common stock that is they are the first one to claim their right on the income of
the company either at the time of distribution of income or at the time of the liquidation of the
company , this is the main difference between the preferred stock and the common stock .
Preferred stock is also considered as a type of bond due to its feature of fixed income and repay
characteristic at the time of maturity these are the reason ehy the preferred stock is considered as
a hybrid between common stock and a bond
Factors determining valuation of preferred stock
1) Fixed dividend: Holders of preferred stock treat it as a investment that gives them fixed
income in the form of dividend like bond gives fixed interest
2) Market interest rates: Preferred stocks are also a type of bond hence market interest rates plays
a important role in the valuation of preferred stock , if market interest rate is down then
preference rate increases and it the market interest rate is high then the preference rate goes down
3) Structure: Whether the preferred stock is convertible or non convertible also plays a great role
in the valuation of the preferred sock