Question

Which of the following is not usually a right or attribute of preferred stock? a. Having a priority claim in liquidation relative to the common stock's claim in liquidation. b. Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied. c. Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock. d. Having a priority claim to dividends relative to the common stock's claim to dividends.

Answer 1

Answer:

c. Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock.

Explanation:

A preferred stock is a type of stock that investors hold and this stock has priority on dividend payment over a common stock. The former's dividends are fixed and if a company makes losses and doesn't pay any dividends in a particular year, preferred dividends will be cumulative and therefore carried forward to the following year, common stocks do not have this feature. However, one disadvantage of preferred stocks is that they do not have voting rights.