Explore BrainMass

Explore BrainMass

    Define preferred stock and contrast it to common stock

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Why is preferred stock referred to as "preferred"? What are some of the features that are added to preferred stock to make it more attractive to investors? Would you select preferred stock or common stock as an investment? Why?

    © BrainMass Inc. brainmass.com June 3, 2020, 9:33 pm ad1c9bdddf

    Solution Preview

    They are preferred because these stocks carry preferential rights/ priority over common stock. Preferred stock is normally paid a guaranteed dividend which receives first priority (i.e., the common stockholders cannot receive a dividend until the preferred dividend has been paid in full) and has dibs over the common stockholders at the company's assets in the event of bankruptcy (its claim is still subordinate to that of the bond holders, however).

    There are number of features that decide the relative attractiveness of a preferred stock:

    There are a number of additional provisions that can affect the value of a preferred stock. Here are just a few:

    Voting vs. Non-Voting: Owners of ...

    Solution Summary

    Define preferred stock and contrast it to common stock