Which of the following statements is CORRECT?
A)Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.
B)The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
C)Corporations cannot buy the preferred stocks of other corporations.
D)Preferred dividends are not generally cumulative.
E)A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

Question

Quizplus · Accepted Answer

Preferred stock is generally less risky than common stock as it offers a fixed dividend payment and has priority over common stock in the event of bankruptcy. Option A is incorrect as in the event of a liquidation, bondholders have priority over both preferred and common stockholders. Option C is incorrect as corporations can buy preferred stocks of other corporations. Option D is incorrect as preferred dividends are usually cumulative, meaning any unpaid dividends accrue and must be paid before common stockholders receive any dividends. Option E is incorrect as dividends on preferred stocks are not tax deductible by the issuing corporation.

Which of the Following Statements Is CORRECT