FINRA Series 66 quiz

Channing Inc. has $100 par 4.80% preferred stock outstanding. Dividend rates for new issues rise to 5.30% a year after issuance. Which of the following is the most likely current market price of the preferred stock?

When dividend and interest rates rise, fixed income securities (including preferred stock) fall in price. With the lower dividend rate of 4.80% compared to a market interest rate of 5.30%, other investors will avoid purchasing the 4.80% preferred stock at par or a premium (price above par); they can simply go purchase another new issue preferred stock and reasonably expect a yield close to 5.30%. With $90.57 being the only discount as an answer choice, it is the most likely price the preferred stock would be trading at.