Preferred Stock

Question 1

Features of preferred stock

Answer 1

Senior Equity security
$100 par, fixed dividend rate based on par
No voting rights
No preemptive rights
Some features similar to bonds

Question 2

Preferred stocks vs bonds - what is same?

Answer 2

Same:
- Fixed interest rate
- No voting rights
- No preemptive rights

Question 3

Preferred stocks vs bonds - what is different ?

Answer 3

Different:
- Bonds mature on set date - preferred are indefinite
- Bondholders have priority over preferred shareholders for interest payments and corp assets during liquidation
- Bondholders have legal right to interest payments whereas preferred dividends is decided on by the board

Question 4

Types of preferred stock

Answer 4

Cumulative - If dividends are not paid, the missed payments accumulate and must be paid before common shareholders
Callable - company can buy them back after a set date, typically at the par value
Covertible - can exchange them for common stock at predetermined price.
Participating - may get additional dividends declared by the board

Question 5

Interest rates impact on preferred stock prices

Answer 5

As rates rise, prices fall
As rates fall, prices rise