Which of the following statements is CORRECT?
A) Preferred stockholders have a priority over bondholders to the income in the event of a bankruptcy,but not to the proceeds in the event of a liquidation.
B) The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
C) Corporations cannot buy the preferred stocks of other corporations.
D) Preferred dividends are not generally cumulative.
E) A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

Question

Quizplus · Accepted Answer

Preferred stock is generally considered less risky to investors than common stock as it has a fixed dividend payment and a priority over common stock in the event of liquidation. Option A is incorrect as in the event of bankruptcy, bondholders have a priority over all types of stock. Option C is incorrect as corporations can buy preferred stocks of other corporations. Option D is also incorrect as preferred dividends are generally cumulative, meaning that if a company misses a dividend payment, it must pay it later before paying any further dividends. Option E is also incorrect as dividends on preferred stocks are not tax deductible for the issuing corporation.

Which of the Following Statements Is CORRECT