Question

Preferred stock yields often are lower than yields on bonds of the same quality because of:

a. Marketability

b. Risk

c. Taxation

d. Call protection

Short answer

The correct answer is Option ‘c’.

Step-by-step solution

Definition

Preferred stock is a “non-voting” share of ownership of a fraction in a corporation, proportionate to the number of shares owned. It usually pays a fixed dividend.

A bond is a loan by an investor to a borrower for a fixed income.

Explanation

Preferred stock yields often are lower than yields on bonds of the same quality because of the taxation. The preferred stocks are treated as dividends than interest on debt; hence they are not treated as tax-deductible expenses for the firm. Therefore the correct option is c.