Question

Fegley Inc. has an issue of preferred stock. What is the problem with the preferred stock?

1) It has a fixed dividend rate.
2) It has a higher claim on assets than common stock.
3) It has no voting rights.
4) It is less risky than common stock.

Answer 1

The problem with preferred stock is that it has a fixed dividend rate, higher claim on assets than common stock, and no voting rights.

Step-by-step explanation:

The problem with preferred stock is that it has a fixed dividend rate, which means that the dividend payments are set at a specific amount and do not fluctuate based on the company's performance. Additionally, preferred stock has a higher claim on assets than common stock, meaning that if the company goes bankrupt, preferred shareholders will have a higher priority in receiving their share of the company's assets. Finally, preferred stock typically does not have voting rights, which means that preferred shareholders do not have a say in the company's decision-making process.