Preferred stock is affected by a decrease in the required rate of return in a manner that the value of a share of preferred stock increases.
Changes in interest rates have an impact on the market value of preferred shares. The value of the preferred shares decreases if interest rates increase. The opposite would apply if rates dropped. This, therefore, implies that if the required rate of return decreases, the value of a share of preferred stock would increase.
A different kind of equity known as preferred stock gives investors ownership in a firm and the right to receive income from that company's operations. Preferred stockholders have a greater right to distributions than common stockholders (such as dividends).
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Complete question is:
How is preferred stock affected by a decrease in the required rate of return?
A) The value of a share of preferred stock increases.
B) The dividend increases.
C) The dividend decreases.
D) The dividend yield increases.