Question

Preferred stock typically has a par value, and the dividend is often stated as a percentage of par. The par value is also important in the event of liquidation, as the preferred stockholders are generally entitled to receive the par value before anything is given to the common stockholders.

A.True
B.False

Answer 1

The claim is true; preferred stock generally comes with a par value and dividends that are calculated based on this par value, and preferred stockholders have priority over common stockholders in the distribution of assets during liquidation.

Step-by-step explanation:

The statement is true: Preferred stock typically does have a par value, and dividends are usually expressed as a percentage of that par value. Moreover, in the event of a company's liquidation, preferred stockholders are typically entitled to receive the par value of their shares before common stockholders receive any assets. This structure of payouts reflects the priority in claims on a company's assets and profits for different kinds of stockholders.

When a company issues dividends, it is distributing a portion of its profits to shareholders. The dividends for preferred stocks are often a set percentage of the par value.

An investor's return from holding a stock can take two forms: regular dividend payments or capital gains, which are realized when the stock is sold at a higher price than it was purchased. Financial investors consider both these potential income streams when assessing a stock's value.