Which of the following is not a characteristic that sets preferred stock apart from common stock? A. voting rights B. dividend payments C. transferability D. ownership
Which of the following is not a characteristic that sets preferred stock apart from common stock? A. voting rights B. dividend payments C. transferability D. ownership
Which of the following is not a characteristic that sets preferred stock apart from common stock?
A. voting rights
B. dividend payments
C. transferability
D. ownership
Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.
Expert Solution & Answer
To determine
Introduction: The company issues securities to raise the capital required in the organization. The two types of stocks are the preferred stock and the common stock.
To choose:The correct option.
Answer to Problem 1MC
The correct option is D.
Explanation of Solution
Explanation for the correct answer: The common stock and the preferred stock has a similarity of ownership. With the issuance of the stock, both the common stockholders and the preferred stockholders gets a right in the ownership of the company. Therefore, ownership is the characteristic that does not sets the preferred stock apart from the common stock. Hence, it is the correct answer.
Explanation for the incorrect answers:
A. Voting rights: The common stockholders of a company have the right to vote in the meetings of the company. The preferred stockholders do not have a right to vote in the meetings of the company. The voting right is a characteristic that sets apart the preferred stock from the common stock. Therefore, it is an incorrect answer.
B. Dividend payments: The preferred stockholders get a fixed rate of dividend on their shareholding in the company. The dividends on the common stock are not fixed. The dividend payment is a characteristic that sets apart the preferred stock from the common stock. Therefore, it is an incorrect answer.
C. Transferability:The common stockholders can transfer their shares to other shareholders, but preferred stockholders cannot do that. The transferability is a characteristic that sets apart the preferred stock from the common stock. Therefore, it is an incorrect answer.
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