Preferred stock is called a hybrid security because

Question

Quizplus · Accepted Answer

Preferred stock has characteristics of both common stock and bonds. Like common stock, it represents ownership in a company, but like bonds, it typically pays a fixed dividend and has a priority claim on the company's assets in the event of bankruptcy. Therefore, it is considered a hybrid security. Choice A is incorrect as preferred stock is not linked to seed-producing companies. Choice B is incorrect as preferred stock does not necessarily offer a greater dividend than common stock. Choice D is incorrect as preferred stock does not have the same features as bonds, but rather shares characteristics with both common stock and bonds.

Preferred Stock Is Called a Hybrid Security Because