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Characteristics of preferred stock includes Correct Answer -dividends in arrears
-dividends are cumulative
-higher payoff claim in a BK (has first dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no fixed maturity date
-no voting rights
-can skip dividend payments
-dividends don't change year-after-year
-used in startups (IPO)
Preferred stock dividends Correct Answer can go without payment and pay in arrears the following year
Characteristics of common stock are Correct Answer -voting rights
-no maturity date
-corporate governance
-lower payoff claim in BK
-variable returns
-unlimited earnings potential
-earnings are in dividends & the increase in price of stock
New start up ventures often issue Correct Answer preferred stock (in an IPO)
What stock is considered a hybrid Correct Answer preferred stock
One thing common stock and preferred stock have in common is Correct Answer both have no maturity date
Which type of security has voting rights Correct Answer common stock
Debt covenants and restrictions help to ensure that Correct Answer management is meeting bond and shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds Correct Answer -when bond matures, bondholder gets lump sum back
-coupon rate doesn't change
-maturity is in years
-PAR value is typically $1000
-Future value (same as PAR) is typically $1000
Bond sells at face value when Correct Answer required rate of return is equal to the coupon rate
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