Which of the following statements is most CORRECT?
A) By law in most states, all preferred stock must be cumulative, meaning that the compounded total of all unpaid preferred dividends must be paid before any dividends can be paid on the firm's common stock.
B) From the issuer's point of view, preferred stock is less risky than bonds.
C) Whereas common stock has an indefinite life, preferred stocks always have a specific maturity date, generally 25 years or less.
D) Unlike bonds, preferred stock cannot have a convertible feature.
E) Preferred stock generally has a higher component cost of capital to the firm than does common stock.

Question

Quizplus · Accepted Answer

Preferred stock is considered less risky than bonds from the issuer's perspective because it does not obligate the company to make fixed payments. Failure to pay dividends on preferred stock does not result in bankruptcy, whereas failing to make bond payments can.

Which of the Following Statements Is Most CORRECT