Preferred Stock Valuation Uses a Constant Dividend While Common Stock

question 71

Multiple Choice

Preferred stock valuation uses a constant dividend while common stock valuation uses either a constant dividend growth or a variable dividend growth. Why is this statement true?

• A) Preferred stock receives just as much dividends as common stock.
• B) Since not many companies use preferred stock, they just made the calculations easier.
• C) Preferred stock receives dividends based on a set amount where common stock can receive dividends either equal to preferred stock or based on earnings.
• D) Common stock dividends usually grow faster than preferred stock dividends.