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Why is a change in required yield for preferred stock likely to have a great impact on price than a change in required yield for bonds?
Wiki User
∙ 11y ago
Bonds have a maturity date while most preferred stocks are perpetual, which means they never mature. No matter the change in interest rates before maturity, bonds will eventually be worth par or 100 when they mature. So interest rate changes may affect the price in the near term but the investor will know what s/he will get at maturity. Since preferred stocks never mature, there is no value in the future that anchors the price of the bond. Therefore, if interest rates go up, the value of the preferred may be permanently impacted by a better interest rate than the stated dividend yield. Thus, the price of the preferred stock will be volatile than that of a bond.
Wiki User
∙ 11y ago
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