Preferred stock differs from common stock in that preferred stock:
A)has more voting power and,as such,greater control over the management of the company.
B)is less risky because preferred stockholders are paid dividends before common stockholders.
C)pays a tax-free dividend.
D)has no preemptive rights or residual claims.

Question

Quizplus · Accepted Answer

Preferred stock is less risky than common stock because preferred stockholders are usually paid dividends before common stockholders. Additionally, preferred stock may have other preference rights, such as liquidation preference, that make them less risky. However, preferred stock usually does not have voting power or preemptive rights, which are features of common stock. Preferred stock does not pay a tax-free dividend, as the tax treatment depends on the specific characteristics of the investment.

Preferred Stock Differs from Common Stock in That Preferred Stock