Question

Which of these best describes preferred stock?

a. Preferred stock is created when a corporation buys its own stock sometime after issuing it.
b. Preferred stock offers holders a preference to dividends declared by the corporation.
c. Preferred stock is not flexible in providing terms and provisions that can be tailored to meet the firm's needs.
d. The dividend rate on preferred stock can only be stated in one way.

Answer 1

Preferred stock offers holders a preference to dividends declared by the corporation.

Step-by-step explanation:

Preferred stock offers holders a preference to dividends declared by the corporation. Unlike common stock, preferred stockholders have a fixed dividend rate that must be paid before any dividends are distributed to common stockholders. This means that preferred stockholders receive their dividends first and have a higher claim on the company's profits. Preferred stock is a type of security that combines characteristics of both stocks and bonds, providing investors with a steady income stream and potentially higher returns compared to common stock.