Why Are Preferred Shares Generally Considered More Risky Than Bonds

question 25

Multiple Choice

Why are preferred shares generally considered more risky than bonds?

• A)They have a lower priority on assets than bonds in the event of bankruptcy
• B)They lack the assurance of a bond's contracted for return of principal
• C)They typically have higher yields than bonds
• D)Both a and b
• E)All of the above

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Definitions:

Marginal Cost

The surplus cost attributed to generating one more unit of a product or service.

Production Function

A mathematical representation showing the relationship between input factors and the output of goods or services.

Competitive Markets

Markets characterized by many buyers and sellers, where no single participant has significant influence on price or product offerings.

Fixed Costs

Costs that do not vary with the level of output production, such as rent, salaries, and insurance.