Preferred stock is similar to common stock in that
A) it has no fixed maturity date.
B) the nonpayment of dividends can bring on bankruptcy.
C) dividends are limited in amount.
D) both carry voting rights.

Question

Quizplus · Accepted Answer

Preferred and common stocks are both types of equity securities, which means they represent ownership in a company. They both have no fixed maturity date, which means they do not have a date on which they must be redeemed or repaid. However, preferred stock typically has a fixed dividend rate, which means the amount of the dividend is predetermined and does not fluctuate based on the company's earnings. Unlike common stock, preferred stockholders do not have voting rights in most cases, making choice D incorrect. Additionally, the nonpayment of dividends on preferred stock typically does not lead to bankruptcy, making choice B incorrect. Finally, while dividends on preferred stock may be limited in amount, this is not always the case, making choice C incorrect.

Preferred Stock Is Similar to Common Stock in That