Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A)Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.
• B)The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
• C)Corporations cannot buy the preferred stocks of other corporations.
• D)Preferred dividends are not generally cumulative.
• E)A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher than average market volatility.

Risk Premium

The additional return an investor requires for taking on a higher level of risk compared to a risk-free investment.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, often represented by government bonds in finance.

Market Rate

The prevailing interest rate available in the marketplace for investments of a similar risk and maturity.