Preferred stock is often referred to as a hybrid security for which of the following reasons?
A)Preferred stock dividends are fixed like bond payments but the maturity is indefinite like common stock.
B)Preferred stockholders have preference over common stock holders in bankruptcy,but are subordinate to bondholders.
C)Both A and B are typically true.
D)Neither A nor B are typically true.

Question

Quizplus · Accepted Answer

Preferred stock is considered a hybrid security because it has characteristics of both common stock and bonds. Like bonds, preferred stock pays a fixed dividend rate, but the maturity is indefinite like common stock. Additionally, in the event of bankruptcy, preferred stockholders have preference over common stockholders but are subordinate to bondholders, further highlighting the hybrid nature of the security.

Preferred Stock Is Often Referred to as a Hybrid Security