#1
What is the main characteristic of preferred stock?
Fixed dividend payments
ExplanationProvides consistent dividends to shareholders.
#2
What is the primary difference between preferred stock and bonds?
Bonds have maturity dates, while preferred stock does not
ExplanationPreferred stock lacks maturity date unlike bonds which have fixed repayment dates.
#3
In what way does preferred stock resemble debt instruments?
Interest payments
ExplanationSimilarity lies in receiving fixed payments, although preferred stock dividends are not guaranteed like bond interest payments.
#4
What is the primary advantage of preferred stock for investors compared to common stock?
Fixed dividend payments
ExplanationProvides investors with predictable income through fixed dividends.
#5
What is the primary advantage of preferred stock for issuers compared to bonds?
No obligation to pay dividends
ExplanationIssuers aren't required to pay dividends to preferred shareholders as they would interest on bonds.
#6
Which of the following is a disadvantage of preferred stock for investors?
Higher potential for capital gains
ExplanationLess likelihood of significant share price appreciation.
#7
What does it mean when preferred stock is 'cumulative'?
Dividends accumulate if not paid in a given period
ExplanationUnpaid dividends accrue and must be paid in the future.
#8
In the event of bankruptcy, how is preferred stock treated compared to common stock?
Preferred stockholders have priority over common stockholders
ExplanationPreferred shareholders receive assets before common shareholders in bankruptcy.
#9
Which type of preferred stock allows the issuer to skip dividend payments without facing penalties?
Non-cumulative preferred stock
ExplanationIssuer can skip dividends without obligation to make them up.
#10
What is the typical tax treatment for preferred stock dividends?
Taxed at a lower rate than common stock dividends
ExplanationPreferred dividends often taxed at a lower rate than common stock dividends.
#11
What is the primary advantage of preferred stock for issuers compared to common stock?
No obligation to pay dividends
ExplanationIssuers aren't obligated to distribute dividends to preferred shareholders.
#12
What is the primary difference between cumulative and non-cumulative preferred stock?
Cumulative preferred stock allows for skipped dividend payments
ExplanationNon-cumulative preferred stock doesn't require missed dividends to be repaid.
#13
Which of the following is a feature unique to convertible preferred stock?
Convertible to common stock
ExplanationOption to exchange preferred shares for common shares.
#14
What is the primary reason investors may choose preferred stock over common stock?
Fixed dividend payments
ExplanationStable income through regular dividends.
#15
What is the typical voting rights status of preferred stockholders?
Limited or no voting rights
ExplanationUsually lack voting power or have limited voting rights.
#16
Which of the following is a feature commonly associated with participating preferred stock?
Entitles holders to additional dividends after common stockholders receive theirs
ExplanationShares in additional profits after common shareholders are paid.
#17
Which term refers to the ability of preferred stockholders to convert their shares into common stock?
Conversion
ExplanationOption to change preferred shares into common shares.
#18
What is the main risk associated with holding non-cumulative preferred stock?
Missed dividend payments may not be recovered
ExplanationDividends not paid during periods of non-payment are forfeited.
#19
What is the primary consideration for investors when evaluating convertible preferred stock?
Conversion ratio
ExplanationDetermines the number of common shares received for each preferred share converted.