The cost of preferred stock: Question 2 options:

is equal to the dividend yield

is equal to the yield to maturity

is highly dependent on the dividend growth rate

is independent of the stock's price decreases when tax rates increase

The correct answer is letter "A": is equal to the dividend yield.

Explanation:

Preferred shares have the characteristics of both shares and bonds, which make their valuation different from that of a common share. Preferred shares offer the payment of a fixed dividend at guaranteed intervals on a monthly, quarterly, or annual basis.

If the value of the preferred stock is to be determined, any future dividend payment must be discounted back to the present and then added together. The preferred stock value will equal to the dividend yield.