Question

Which one of the following statements regarding preferred stock is true?

Multiple Choice

• Preferred stock pays tax-free income.

• Preferred stock generally provides voting rights to its holders.

• Preferred stock generally pays a lower rate to investors than do corporate bonds.

• Preferred stock provides totally tax-free income to corporate shareholders.

• Preferred stock can frequently be converted into bonds.

Answer 1

Preferred stock generally pays a lower rate to investors than do corporate bonds.

Usually companies offer preferred stock and bonds for raising funds from the investors. Preferred stocks have no interest receivable but preference share holders get dividend instead of interest. Dividend is the return for preferred stockholders. Bonds have interest and when we are comparing it with the preference shares we can understand that the bonds have higher par value than the preference shares. But for preference shares yield is higher.

ThankYou....