Preferred Stock Valuation Uses a Constant Dividend While Common Stock

question 46

Multiple Choice

Preferred stock valuation uses a constant dividend while common stock can receive dividends based on fixed growth or dividends based on earnings. 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.

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Definitions:

Acquired Immune Deficiency Syndrome (AIDS)

A devastating and incurable illness that is caused by infection with the human immunodeficiency virus (HIV) and progressively weakens the body’s immune system, leaving the person vulnerable to opportunistic infections that usually cause death.

Infections

Invasion and multiplication of microorganisms in body tissues, which can cause disease and immune response.

Virus

A microscopic infectious agent that replicates only inside the living cells of organisms, causing a variety of diseases in humans, animals, and plants.

HIV

Human Immunodeficiency Virus, a virus that attacks the immune system and can lead to Acquired Immunodeficiency Syndrome (AIDS) if not treated.