Though they are classified as equity, why are preferred shares also similar to debt?
A)Both carry the same interest rate.
B)Dividends on preferred shares must be paid out before any common share dividends.
C)The voting structures for preferred shares and debt are equivalent.
D)Preferred shares have similar maturity structures to debt.

Question

Quizplus · Accepted Answer

Preferred shares are similar to debt in that they have priority for dividend payments over common shares, just as debt has priority for interest payments over equity. However, preferred shares do not have a guaranteed interest rate or maturity date, unlike debt. The voting structures for preferred shares and debt are not equivalent as preferred shares usually do not have voting rights.

Though They Are Classified as Equity, Why Are Preferred Shares