Multiple Choice
Which of the following is a primary reason a corporation might choose to issue preferred stock?
26
views
12. Stockholders' Equity
Preferred Stock
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Preferred stock tends to have attributes of which of the following types of securities?
A
Only equity securities
B
Only debt securities
C
Both equity and debt securities
D
Derivative securities
Verified step by step guidance1
Understand the nature of preferred stock: Preferred stock is a type of equity security that represents ownership in a company, but it has characteristics that differentiate it from common stock.
Recognize the equity attributes: Preferred stockholders have ownership in the company and may receive dividends, but they typically do not have voting rights like common stockholders.
Identify the debt-like attributes: Preferred stock often has fixed dividend payments, similar to interest payments on debt, and it may have priority over common stock in the event of liquidation.
Compare preferred stock to derivative securities: Derivative securities derive their value from an underlying asset, such as options or futures, which is not the case for preferred stock. Preferred stock is not classified as a derivative security.
Conclude that preferred stock has attributes of both equity and debt securities, making it a hybrid financial instrument.
6:28mWatch next
Master Issuing Preferred Stock with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Preferred Stock practice set
Problem sets built by lead tutorsExpert video explanations