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
Some issues have a stated maturity date
Failure to pay its dividend does not send the firm into bankruptcy.

Consider the case of Green Caterpillar Garden Supplies:

Green Caterpillar Garden Supplies pays an annual dividend rate of 13.60% on its preferred stock that currently returns 18.22% 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 Green Caterpillars preferred stock?

$65.68 per share

$103.00 per share

$74.64 per share

$80.61 per share

Suppose that due to high inflation, interest rates rise and pull the preferred dividend yield to 26.42%. Then the value of Green Caterpillars preferred stock will to . This is because interest rates (and security returns) and security values are related.

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