Question

As a preferred stockholder, you are entitled to numerous preferences and privileges over common stockholders. If you are a preferred stockholder of a company that has fallen on economic hardship and is likely to go bankrupt, which preference or privilege of preferred stock is going to be most useful to you? Select one: A. Participation privilege B. Conversion privileges C. Asset distribution preference D. Dividend preferenc

Answer 1

Answer: Asset distribution preference

Explanation: Preference shareholders have the right to receive fixed amount of dividends as opposed to equity shareholders who get variable dividends, also preference shareholders are paid before equity holders.

Apart from this, in event of liquidation of a company, preference shareholders will have the right on assets of the company before equity shareholders but after debt holders.

Thus, from the above we can conclude that the right answer is D, the asset distribution preference of the preferred stockholders. As, in such a case preferred stockholders have a chance to have their money back.