Question

​Firms assume ____ risk when they issue preferred stock than when they issue bonds. The payment of dividends on preferred stock ____ be omitted without the firm being forced into bankruptcy.

Answer 1

The correct answer is: less; can.

Step-by-step explanation:

Preferred stocks are different from common stocks. Holders of preferred stocks have a higher claim on the dividends as compared to common stockholders.

Corporate bonds are the instruments through which companies borrow for the long term. They are generally backed by the creditworthiness of the company rather than some asset.

Issuing of preferred stocks is comparatively less risky for the firms than issuing bonds, that's because in case of preferred stocks the payment of dividends can be omitted without the firm being forced to bankruptcy.