#1
Which of the following is a characteristic of preferred stock?
Priority in dividend payments
ExplanationPreferred stockholders are entitled to receive dividends before common stockholders.
#2
Which of the following statements is true regarding preferred stock dividends?
Preferred stockholders always receive dividends before common stockholders.
ExplanationDividends are paid to preferred stockholders before any payments to common stockholders.
#3
What distinguishes preferred stock from common stock?
Preferred stockholders have priority in dividend payments and liquidation, while common stockholders do not.
ExplanationPreferred stockholders are prioritized in dividend payments and liquidation compared to common stockholders.
#4
What is the typical priority of preferred stockholders in case of liquidation?
They have priority over common stockholders but are subordinate to bondholders.
ExplanationPreferred stockholders are prioritized over common stockholders but are secondary to bondholders in liquidation.
#5
Which of the following is a typical characteristic of preferred stock?
Priority in dividend payments
ExplanationPreferred stockholders are prioritized in receiving dividends.
#6
What does it mean when preferred stock is cumulative?
Dividends accumulate if not paid in a given period
ExplanationCumulative preferred stock ensures that unpaid dividends accumulate and must be paid in the future.
#7
What is a call provision in preferred stock?
Allows the issuer to repurchase shares at a specified price
ExplanationA call provision grants the issuer the right to buy back shares from shareholders at a predetermined price.
#8
What is the advantage of issuing convertible preferred stock?
It gives the holder the option to convert into common stock.
ExplanationConvertible preferred stock allows holders to exchange their shares for common stock.
#9
In the event of bankruptcy, which class of shareholders has the highest priority in receiving assets?
Preferred shareholders
ExplanationPreferred shareholders are given precedence in receiving assets during bankruptcy proceedings.
#10
Which of the following is NOT a typical feature of preferred stock?
Dividend growth
ExplanationPreferred stock does not typically have the feature of dividend growth.
#11
What is the purpose of a sinking fund provision in preferred stock?
To enable the company to repurchase shares at market price
ExplanationA sinking fund provision allows the company to buy back shares of preferred stock over time.
#12
What is the difference between participating and non-participating preferred stock?
Participating stock receives additional dividends if common stock dividends exceed a certain level, while non-participating does not
ExplanationParticipating preferred stockholders receive extra dividends when common stock dividends surpass a specified threshold, while non-participating do not.
#13
What is a preferred stock's liquidation preference?
The priority claim on assets in case of liquidation
ExplanationPreferred stockholders have the first claim on assets during liquidation.
#14
What is the significance of the stated value of preferred stock?
It represents the minimum price at which preferred shares can be sold.
ExplanationThe stated value indicates the minimum price at which preferred shares can be traded.
#15
What is the main reason why investors might prefer cumulative preferred stock over non-cumulative preferred stock?
Cumulative preferred stock guarantees payment of dividends even if they are not declared in the current period.
ExplanationCumulative preferred stock ensures that missed dividends accumulate and must be paid at a later date.
#16
Which of the following is NOT a risk associated with investing in preferred stock?
Market risk
ExplanationMarket risk is not typically associated with investing in preferred stock.
#17
How does preferred stock typically react to changes in interest rates?
Preferred stock prices are inversely related to changes in interest rates.
ExplanationAs interest rates rise, the value of preferred stock generally decreases.