Corporate Reporting and Analysis

Question 1

What is preferred stock?

Answer 1

Preferred stock is a type of equity security that has preferential rights over common stock, particularly in dividend payments and asset liquidation.

Question 2

True or False: Preferred stockholders have voting rights in a company.

Answer 2

False

Question 3

Fill in the blank: Preferred stocks typically pay a fixed ______.

Answer 3

dividend

Question 4

What is a key difference between preferred stock and common stock?

Answer 4

Preferred stock has a fixed dividend and priority over common stock in asset liquidation, while common stock typically has voting rights and variable dividends.

Question 5

What does it mean for preferred stock to be ‘cumulative’?

Answer 5

Cumulative preferred stock means that if a company skips dividend payments, those payments accumulate and must be paid before any dividends can be paid to common stockholders.

Question 6

Multiple Choice: Which of the following is a characteristic of preferred stock? A) Voting rights B) Fixed dividends C) Higher risk D) None of the above

Answer 6

B) Fixed dividends

Question 7

What is the primary advantage of investing in preferred stocks?

Answer 7

The primary advantage is the fixed dividend payments, which can provide a stable income stream.

Question 8

True or False: Preferred stocks are generally less risky than common stocks.

Answer 8

True

Question 9

What is ‘convertible preferred stock’?

Answer 9

Convertible preferred stock is a type of preferred stock that can be converted into a specified number of common shares at the option of the stockholder.

Question 10

Fill in the blank: Preferred stock dividends are paid _______ common stock dividends.

Answer 10

before

Question 11

What is ‘participating preferred stock’?

Answer 11

Participating preferred stock allows shareholders to receive additional dividends beyond the fixed rate if the company performs well.

Question 12

Multiple Choice: Which of the following would typically have a lower yield? A) Common stock B) Preferred stock C) Bonds D) Real estate

Answer 12

B) Preferred stock

Question 13

What does it mean for preferred stock to be ‘non-cumulative’?

Answer 13

Non-cumulative preferred stock means that if dividends are not paid in a given year, they do not accumulate and are lost.

Question 14

True or False: Preferred stocks can be callable.

Answer 14

True

Question 15

What is the significance of a ‘callable’ feature in preferred stocks?

Answer 15

A callable feature allows the issuing company to repurchase the preferred stock at a predetermined price after a certain date.

Question 16

Fill in the blank: The market price of preferred stocks can be influenced by changes in ______ rates.

Answer 16

interest

Question 17

What is the typical claim of preferred stockholders in the event of liquidation?

Answer 17

Preferred stockholders have a claim on assets before common stockholders but after debt holders.

Question 18

Multiple Choice: Which is NOT a type of preferred stock? A) Cumulative B) Non-cumulative C) Fixed-rate D) Common

Answer 18

D) Common

Question 19

True or False: Preferred stocks are more likely to be issued by stable companies.

Answer 19

True

Question 20

What is a ‘preference’ in the context of preferred stocks?

Answer 20

Preference refers to the priority that preferred stockholders have over common stockholders in receiving dividends and during liquidation.

Question 21

Fill in the blank: The dividend rate on preferred stock is usually expressed as a percentage of the ______.

Answer 21

par value

Question 22

What is the main risk associated with preferred stocks?

Answer 22

The main risk is that dividends can be suspended, especially if the issuing company faces financial difficulties.

Question 23

Multiple Choice: Which of the following is a disadvantage of preferred stocks? A) No voting rights B) Higher volatility C) Lower dividends D) More risk

Answer 23

A) No voting rights

Question 24

What is a ‘dividend yield’ in relation to preferred stocks?

Answer 24

Dividend yield is a financial ratio that shows how much a company pays in dividends each year relative to its preferred stock price.