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Compare preferred stock to debt instruments.

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Is preferred stock classified as equity or debt?

List the similarities between bonds or other debt instruments compared to preferred stock.

List the differences between the two.

What is the preferred placement for preferred stock on the balance sheet of a company?

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Solution Summary

The solution gives five conditions in which preferred issues are similar to bond indentures following by five conditions in which they are not similar.

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Similarities

1. Both are interest rate sensitive, and the market price of the securities will tend to adjust with changes in interest rates.
2. Both can be callable or redeemed as of a specified date.
3. Both are senior to common stocks in liquidation, but bonds are senior to preferreds.
4. Both can have convertible ...

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