An issue of 8.5% Series C preferred stock has a par value of $75 million or $40 per share and was sold to investors several years ago at par. According to the terms of the issue, the preferred is scheduled to be redeemed in 25 years at its par value of $40 per share. Dividends are paid quarterly but analyzed as if paid annually. The stock is currently trading at a discount for $35 per share.

1. Which of the factors listed below could have contributed to the stock trading at $35 per share instead of the par value of $40?

1. Interest rates have increased since the preferred was issued.
2. Interest rates have decreased since the preferred was issued.
3. The issuers debt/equity ratio has decreased significantly since the preferred was issued.
4. The issuers net income and free cash flow have increased significantly since the preferred was issued.
5. Answers a, c, and d are correct.