Fixed dividend preferred stock is a good candidate for marketable security holdings designed to provide liquidity because 70 percent of the dividends are excludable from taxable income, hence the preferred would provide a relatively high after-tax rate of return.

Question

Quizplus · Accepted Answer

Fixed dividend preferred stock is not primarily chosen for liquidity purposes; it is typically chosen for income due to its fixed dividends. Additionally, the tax exclusion mentioned applies to corporate investors, not individual investors, and liquidity is more about the ease of buying and selling rather than tax benefits.

Fixed Dividend Preferred Stock Is a Good Candidate for Marketable