Series 7 Chapter 1 Preferred Stock
2025/2026 Exam Questions and Verified
Answers | Already Graded A+
Preferred Stock - 🧠 ANSWER ✔✔Like a debt security, preferred shares generate
income from a fixed, regular monetary payment rather than a share in the
company's financial gains. Also like a bond, a preferred stock's market price
fluctuates with interest rates and credit worthiness, rather than with a company's
earnings and losses. As a result, preferred stock is less risky than common stock,
but it offers less growth potential. It is more risky than debt, because companies
can miss their regular dividend payments without being in default.
why preferred? - 🧠 ANSWER ✔✔Preferred stock is "preferred" in the sense that
dividend payments are distributed to preferred stockholders before any dividends
are paid to common stockholders.
, Preferred stock also has a higher claim on a corporation's dividends and residual
assets during bankruptcy than common stock
If a company is forced to liquidate, preferred stockholders have first claim to its
remaining assets compared to other equity holders. The price for these enhanced
privileges is that preferred stocks generally come without voting rights and have no
real share in the company's profits
preferred dividends - 🧠 ANSWER ✔✔As with common stocks, dividend payments
for preferred shares often are paid quarterly. Unlike with common stocks, however,
dividend payments for preferred shares are determined when the stock is issued
fixed rate preferred stock - 🧠 ANSWER ✔✔may set its dividend payment at a
fixed-dollar value ($5), or the dividend may be based on a percentage of the par
value of the stock as stated on the stock certificate (5%)
floating rate - 🧠 ANSWER ✔✔will have an adjustable dividend based on a formula
tied to another benchmark, such as 3% above the interest rate on 90-day Treasury
bills. The rate is reset quarterly, making the prices of adjustable-rate preferred less
sensitive to interest rate changes than fixed-rate preferred.
2025/2026 Exam Questions and Verified
Answers | Already Graded A+
Preferred Stock - 🧠 ANSWER ✔✔Like a debt security, preferred shares generate
income from a fixed, regular monetary payment rather than a share in the
company's financial gains. Also like a bond, a preferred stock's market price
fluctuates with interest rates and credit worthiness, rather than with a company's
earnings and losses. As a result, preferred stock is less risky than common stock,
but it offers less growth potential. It is more risky than debt, because companies
can miss their regular dividend payments without being in default.
why preferred? - 🧠 ANSWER ✔✔Preferred stock is "preferred" in the sense that
dividend payments are distributed to preferred stockholders before any dividends
are paid to common stockholders.
, Preferred stock also has a higher claim on a corporation's dividends and residual
assets during bankruptcy than common stock
If a company is forced to liquidate, preferred stockholders have first claim to its
remaining assets compared to other equity holders. The price for these enhanced
privileges is that preferred stocks generally come without voting rights and have no
real share in the company's profits
preferred dividends - 🧠 ANSWER ✔✔As with common stocks, dividend payments
for preferred shares often are paid quarterly. Unlike with common stocks, however,
dividend payments for preferred shares are determined when the stock is issued
fixed rate preferred stock - 🧠 ANSWER ✔✔may set its dividend payment at a
fixed-dollar value ($5), or the dividend may be based on a percentage of the par
value of the stock as stated on the stock certificate (5%)
floating rate - 🧠 ANSWER ✔✔will have an adjustable dividend based on a formula
tied to another benchmark, such as 3% above the interest rate on 90-day Treasury
bills. The rate is reset quarterly, making the prices of adjustable-rate preferred less
sensitive to interest rate changes than fixed-rate preferred.
