Question

Preferred stock is similar to common stock in the following way;

a.

both preferred stock and common stock provide equal periodic dividends.

b.

both investments have a final maturity value set by the issuing agreement.

c.

both contain a dividend growth factor.

d.

as equity, both are subordinate to bondholders in the event of bankruptcy.

Answer 1

Answer - Option d

Both preferred stock and common stock are subordinated to bond holders in event of bankruptcy.

Option a is incorrect. common stock may or may not provide equal and periodic dividends.

Option b is incorrect. Common stock do not have any maturity date. Preferred stock may also be perpetual in nature but may have a mturity date as well.

Option c is incorrect. Preferred stock normally do not have a dividend growth factor. They pay constant dividends.