Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and other

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Preferred stock is often called a hybrid security because it has
some characteristics that are typical of debt and others that are
typical of common equity. The following table lists several
characteristics of preferred stock. Determine which of these
characteristics are consistent with debt securities and which are
consistent with common stock.
Characteristic
Debt
Common stock
Consider the case of Cute Camel Woodcraft Company:
Cute Camel Woodcraft Company pays an annual dividend rate of
11.60% on its preferred stock that currently returns 15.54% and has
a par value of $100.00 per share. The preferred stock issue does
not mature, and computes its annual dividend as the product of its
dividend rate and its par value. What is the current market value
of Cute Camel’s preferred stock?
$65.69 per share
$103.02 per share
$80.62 per share
$74.65 per share
Suppose that there is high unemployment, which causes interest
rates to fall, which in turn pulls the preferred dividend yield to
13.36%. Then the value of Cute Camel’s preferred stock will
to . This is because
interest rates (and security returns) and security values are
related.