Final answer:
The assertion that preferred stock normally provides a higher expected return than common stock is false. Common stock offers the potential for higher returns due to its growth-linked value, while preferred stock tends to pay fixed dividends and provides payment seniority.
Step-by-step explanation:
The statement that preferred stock normally will provide a higher expected return than will common stock is false. When it comes to preferred stock, the 'preferred' feature primarily relates to the order of receiving company assets in the event of liquidation and priority in receiving dividend payments. However, common stock has the potential for higher returns because its value is directly linked to the company's performance and growth, whereas preferred stock typically offers fixed dividend payments. High-risk investments, like common stocks, have higher potential returns to compensate for their higher risk, as opposed to lower-risk investments like preferred stocks or bonds. Therefore, while preferred stocks may offer certain advantages such as fixed dividends and priority over common stocks in certain situations, they do not typically offer higher expected returns than common stocks.Over time, common stocks have historically provided higher returns compared to other investment types, reflecting the principle that with greater risk comes the potential for higher rewards. This is manifest in the fact that stock values can fluctuate significantly, evidenced by the S&P 500's performance in recent years. Moreover, younger investors who can withstand the volatility of the stock market over a longer horizon are more likely to benefit from the elevated returns stocks can offer.