To the security holder, preferred stock offers the highest risk and the lowest return.

Question

Quizplus · Accepted Answer

This statement is incorrect. Preferred stock offers lower risk than common stock because preferred stocks have priority over common stocks in the event of bankruptcy or liquidation. However, preferred stock also typically offers a lower return than common stock, since common stock dividends are usually not fixed and may increase over time based on the company's performance.

To the Security Holder, Preferred Stock Offers the Highest Risk