ACC 281 Week 4 DQ1 - 7426

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Why is preferred stock referred to as preferred? What are some of the features that are added to preferred stock to make it more attractive to investors? Would you select preferred stock or common stock as an investment? Explain why

 

Why is preferred stock referred to as preferred?

 

Preferred stock is referred to as “preferred” because corporations that issue stock wish to appeal to more investors by offering a special class of stock. Preferred stock has provisions that give it some preference or priority over common stock which may appeal to certain investors.

 

What are some of the features that are added to preferred stock to make it more attractive to investors?

Preferred stockholders have a priority as to distributions of earnings (dividends) and assets in the event of liquidation.  Preferred stock often contains a cumulative dividend feature. This feature says that preferred stockholders must be paid both current-year dividends and any unpaid prior-year dividends before common stockholders receive dividends.

Would you select preferred stock or common stock as an investment? Explain why.


I would most definitely choose preferred over common.  Preferred stockholders not only receive dividends from the corporation but they receive dividends in arrears as well.  Plus, common stockholders cannot get paid until all preferred stockholders have been paid their regular dividends and their dividends in arrears. 

 

 

Solution Description


Why is preferred stock referred to as preferred? What are some of the features that are added to preferred stock to make it more attractive to investors? Would you select preferred stock or common stock as an investment? Explain why

 

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ACC 281 Week 4 DQ1.doc
ACC 281 Week 4 ...