Question

Preferred stock is a hybrid, a sort of cross between a common stock and a bond in the sense that it pays dividends that normally increase annually like common stock but it's payments are contractually guaranteed like interest on a bond.

A. True
B. False

Answer 1

The correct answer is False because preferred dividends don't normally grow.

Step-by-step explanation:

The preferred stock is an action that gives the holder an extra privilege, usually of an economic nature, with respect to what we commonly know as ordinary shares.

For example, the holder of a preferred stock has a higher hierarchy in the collection of dividends or in the distribution of the remaining equity in the event of bankruptcy by the company.

As with ordinary shareholders, preferred shares do not expire, but however, unlike ordinary shares, preferred shares do not legitimize their right to vote at ordinary or extraordinary shareholders meetings, nor do they assign some participation in the capital of the company. Likewise, the profitability of preferred shares is also not guaranteed, because it is linked to obtaining benefits.