Financial Planner

Answer: C - Stocks and Bonds are capitalized for earnings. Capitalization treats earnings and dividends as perpetuity. Preferred stock is a perpetual debt instrument. Its dividends continue indefinitely because there is no maturity on preferred stock. The value of preferred stock is the present value of its dividends discounted at the appropriate interest rate over an infinite period of time. The price of a bond is the present value of future cash flows discounted at the appropriate interest rate. Bonds generally pay interest twice a year instead of once a year.