Question

True or False: In the event of the firm's bankruptcy, the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.

Answer 1

Answer:

The answer is true.

Explanation:

Preference or preferred shareholders are synonymous to lenders to a business or company. Preferred shares are like debt to a business. They possess the characteristics of both debt and equity and in the case of liquidation, they have to be settled first. Common shareholders are the last shareholders to settled.