Which of the Following Statements Concerning Preferred Stock Is Correct

question 65

Multiple Choice

Which of the following statements concerning preferred stock is correct?

• A) Preferred stock generally has a higher component cost to the firm than does common stock.
• B) By law in most states,all preferred stock issues must be cumulative,meaning that the cumulative,compounded total of all unpaid preferred dividends must be paid before dividends can be paid on the firm's common stock.
• C) From the issuer's point of view,preferred stock is less risky than bonds.
• D) Preferred stock,because of the current tax treatment of dividends,is bought mostly by individuals in high tax brackets.
• E) Unlike bonds,preferred stock cannot have a convertible feature.

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Definitions:

Point In Time

describes a specific moment or instance in the timeline.

Determined

A term describing a definite and firm decision or the resolution to follow a particular course of action.

Measured

A term referring to something that has been quantitatively determined or assessed by using specific units or standards.

Flow Variable

An economic measure that represents something measured over a specific period of time, such as income or expenditure, which contrasts with stock variables that are measured at a specific point in time.