Question

The name preferred stock is in reference to the fact that:_____.

a. it is a type of corporate debt.
b. it is treated like debt for tax purposes.
c. preferred dividends must be paid in full before any additional interest may be paid.
d. preferred dividends must be paid in full before any common stock dividends can be paid.
e. fixed income traders prefer it to bonds.

Answer 1

Answer: d. preferred dividends must be paid in full before any common stock dividends can be paid.

Step-by-step explanation:

Preferred stocks will see their dividends paid before those of common shares. Indeed if the company was to liquidated, preferred shareholders get preference over common shareholders.

Preferred dividends have preference over common dividends and so their name reflects this by being called ''preferred'' shares. Some classes of preferred shares such as cumulative shares have an even greater amount of preference as their dividends will always be paid even if it takes years to do so.