Which of the following statements is CORRECT?
A) preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
B) the preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
C) one of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
D) one of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
E) a major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.

Question

Quizplus · Accepted Answer

Preferred stock is considered less risky than common stock because it provides a steady income to investors. As a result, preferred stock has a lower expected after-tax yield than the expected after-tax return on common stock.

Which of the Following Statements Is CORRECT