Briefly explain the mechanics of adjustable rate and market auction preferred stock.

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Briefly explain the mechanics of adjustable rate and market auction preferred stock.

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Briefly explain the mechanics of adjustable rate and market auction preferred stock.

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In case of adjustable rate preferred stock (ARP), the dividend rate is tied to the rate on the treasury securities of Country U. This means that the dividend rate is not fixed on these stocks. Moreover, the ARPs are issued by commercial banks and utilities. The ARPs also have some price variations due to the changes in the riskiness of the issuing company and the changes in the yield on the treasury securities of Country U.
 
On the other hand, market auction preferred stock are those wherein the underwriter of the stock escorts an auction on the issue every 7 weeks. Here, the holders who are willing to sell their shares can go for the auction at the par value of their stock. Now, the buyers submit their bids in the form of the yield on those stocks and submit it for the 7 week auction. Once the bid prices are submitted by the buyers, the holders of the stock are assured that they will at least receive the par value of their stocks.

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