The type of stock that may earn more than the stated dividend if the firm has a good year is ____________ stock.
A)common
B)convertible preferred
C)participating preferred
D)cumulative preferred
E)callable preferred

Question

Quizplus · Accepted Answer

Participating preferred stock is the type of stock that may earn more than the stated dividend if the firm has a good year. This is because participating preferred stockholders have the right to receive a portion of the profits that remain after all other obligations have been met, in addition to their stated dividend. Common stock may also receive additional earnings in the form of dividends, but this is not guaranteed and is subject to board approval. Convertible preferred stock allows the holder to convert their shares into common stock, but it does not provide for extra earnings beyond the stated dividend. Cumulative and callable preferred stock do not relate to additional earnings beyond the stated dividend.

The Type of Stock That May Earn More Than the Stated